Monitoring cashflow for your startup closely allows you to avoid problems and also gain the trust of current and potential investors. Cash flows also allow you to spend more time on business opportunities such as developing your product, your brand positioning and creating a better relationship with clients.
The cash flow report is important because it informs the reader of the business cash position. For a business to be successful, it must have sufficient cash at all times. Your company needs cash to pay its expenses, to pay bank loans, to pay taxes and to purchase new assets and all this is only possible if the company has a good cash flow management system.
Having a proper cash flow management system is a key requirement for a business to stay solvent. When a business has no longer enough cash to pay its dues, it is often declared bankrupt.
In this article, we will highlight some of the possible ways startups can make cashflow management a top priority. They include:
Hire a financial director
To get started better with your cash flow however small the entity is, a field expert sum up as a key investment in the company to bring all financial needs in order. . If you can not afford a full-time financial expert, use freelance or contract someone able to offer the expertise. It is critical to have someone focused entirely on your business’ financials and the overall financial health of your company. Particularly someone that understands the ins and outs of business and finance strategy and will be able to manage the cash flow.
Evaluate your expenses on a quarterly basis.
This is an important exercise to do, especially if you start to look at your overall cash flow and marginal cash flow as I described above. It is less about cutting corners and more about making sure your business is spending intelligently. When positioned against the ultimate goal of staying in business, you’ll note which expenses are a must-have and those you can forego.
The most important way to be prepared for an unexpected event is simply the awareness that it could happen. Many businesses were taken completely off guard by the pandemic and never fully recovered. Taking the time to assess your financials and putting together a plan is half the battle. The C-Suite should always be thinking about ensuring there’s a sufficient cash cushion so the company can tackle a bad year head-on and increase its probability of long term success.
Have a reserve fund
No one wants to ponder the worst, but there is value in recognizing that things in business can quickly go south. This has been evident with the Covid-19 pandemic that got almost everything at a standstill with some businesses closing down forever. Setting money aside for such times may be a saving grace in difficult times.
If possible, maintain an account balance equivalent to at least two months of operating expenses for your business so that when such times occur, you can protect yourself and your business rom bad debts as you restructure.
Choose the right bank
When you start a company and open a bank account to always ensure your banker understands your activity and the challenges you will inevitably face. Negotiate account fees and any other bank-related expenditure in advance that will help you save more money.
Your startup should always have two bank accounts to allow you to have access to two overdraft facilities, two different loan offers, two payment options. Having two bank accounts also provides you with a safety net in times of difficulty