A Guide to Cash Flow Management for Startups

Monitoring your cash flow will be an integral component to the long term success of your business, especially if you’re running a startup company. More than ever, you need to keep funds coming into your business every day, and it’s also important to delay outgoing funds whenever it’s reasonable to do so. So whether you’re new to what it takes to manage cash flow, or you simply want to improve the way you currently tackle cash flow management, continue reading for a short guide that will help get you started on the right path towards financial success.

Start with Making Sure Your Customers Are Paying You

A lot of businesses end up failing because they do not properly monitor their accounts receivable. In other words, they send out invoices to their customers and then they forget to follow up with those customers to ensure that they get paid on time and in full. This is especially common in very small business environments where there are only a few employees who have a lot of responsibilities to cover every day. However, failing to stay on top of your invoices and your customers will result in losing money, going into debt, and eventually having to close your bankrupt business. Therefore, invest in products like invoice financing tools in order to make sure that you can get the cash you need from every invoice, even when customers have long payment terms and even when they do not pay you on time.

Consider Billing Your Customers Upfront

In addition to using the invoice financing tools mentioned above, you can also improve your cash flow and make it easier to manage your cash flow by billing your customers upfront, especially if you have customers who fail to pay you on time when you give them 30, 60, or even 90 days to pay. All you have to do is ask your customers to pay for your products or services upon their delivery. Also make it a point to only accept payments made with cash, credit card, or via Automated Clearing House in order to prevent delays and uncertainties with payments.

Another strategy that you can employ involves asking your customers for a pre-payment. Some customers may be turned off by these upfront costs, so applying a small discount could help get them to agree to pay at least a partial amount of the bill before the products or services are delivered. Plus, if they pay upfront, they can also avoid the additional charges that you can apply for late payments. Ultimately, these tactics will help you predict and manage cash flow more accurately and effectively.

Limit the Offer of Free Trials

In an attempt to attract and retain more customers, especially during your business’s initial stages, you may be tempted to offer free trials to your products and services. While this can certainly work when it comes to helping you increase your customer base, you should only employ this tactic if you are absolutely certain that you will be able to recover the costs of free trials over time.

For many small businesses, it could actually take years to recoup the costs of offering many customers their free trials. Plus, there is always the uncertainty associated with whether or not those customers will actually come back and pay for your products or services after their free trial is over. So if you are going to be offering free trials, make sure that the payback period will be less than one year, and then offer auto-renewal on annual contracts to ensure adequate cash flow.

Know Exactly Why Money Is Being Spent

Whether you spend hundreds or thousands of dollars on a new investment for your business, you need to know exactly why you are spending that money, why it is a wise investment, and what it will ultimately do for your business. Do not just estimate what these investments will do for you; instead, know how they will pay themselves back and how they will help you generate greater profits in the long run.

Once you have figured out the strategy that works best for your small business startup when it comes to cash flow management, you should find that it is a lot easier to make sound financial decisions. You may need to go through a bit of trial and error at first, but if you follow the tips and advice above, you should be able to find the strategies that work for you in no time at all.