This Is How To Improve Cash Flow For Your Startup
If you’re like some startups today, you’re probably not raking in the cash. At least, not yet. Cash flow is one of the key parts of running any successful business, and if you aren’t seeing your cash goals being met, it’s time to reevaluate your strategy. Don’t worry, most new businesses struggle with cash flow, and it doesn’t mean you’re doomed to fail already.
However, you can’t accept your fate, as common as it may be. You need to overcome this challenge and improve your cash flow so you don’t end up like the 90% of startups that fail. Are you ready to be a part of that 10% that kicks your cash flow into high gear?
1. Create an invoicing system.
It seems like common sense, but many startups don’t have a clear way to send invoices on time. Your invoicing protocol should be spelled out in detail in every contract so there’s no confusion for your team or your clients. You can bill upon the completion of the project, for certain milestones, or just on the same date every month.
Create a personalized invoice template that you can use for your clients. Having a template makes it easy to bill your clients on time, every time. For even simpler invoicing, you can use a tool like Freshbooks that allows custom invoices, scheduling, and on-the-go payments. For more invoice templates and ideas, view more here.
2. Follow up on invoices.
As you know, business owners are busy. Things happen, and you need to be confident with following up about any unpaid invoices. When you have an endless queue of backed up, unpaid invoices, it’s a stopper to your cash flow. Here are a few ideas for how to actually get those invoices paid:
Alerts & Automations - Create an automated alert system to notify clients before an invoice is sent. These reminders are a good way to condition your clients to look out for your invoice and to pay attention to upcoming deadlines.
Clear Contract - As we stated before, you should clearly outline your payment terms in your contract. This introduces your clients to your policy and lets you enforce interest or late payments that motivate a client to pay on time.
Cash Discounts - Who doesn’t love a discount? By offering your customers or clients a discount if they pay early, you can keep cash moving effectively.
Phone Call - Finally, sometimes the best way to get clients to pay is to just pick up the phone. Don’t be hostile, just ask for a status on the payment. This can be just enough to get the ball moving.
3. Look at Purchasing
We all know how important it is to have cash going into our business, but what about the cash that goes out? Yes, you want to quickly collect payments from your clients, but you also need to make sure you aren’t spending too excessively. This all comes down to money optimization, and it’s an essential part of running a successful startup.
First, analyze your spending. Are you purchasing too many materials? Do you have any excessive payments you’re making that don’t seem to be paying off? It’s a good idea to trim these back. Next, are you making any early payments of your own? Remember that cash discount we just talked about? You might be eligible for a discount on many of your current services and products just by asking about them. As long as you’re a reliable customer, odds are your suppliers will have some flexibility that can work in your favor.
4. Pay Slowly
While you should always stay in good relationship with your vendors, there is a good reason to be flexible with your payments. If you’re able to get an early payment discount, for example, you should prioritize that payment. However, you don’t want to drain your bank account too fast.
Making use of low or zero interest credit cards is a good way to buy yourself some wiggle room with business purchases. Cash is so essential to your startup, and you don’t want to burn through it too quickly by paying too much all at once. If possible, space out your payments by waiting until closer to the 30-day deadline or using credit cards.
According to an analysis of over 100 failed startups, the second common reason businesses fail is because they ran out of cash. As a new business owner, you can feel like your bank account is nothing more than a balancing act. You need to not only keep your clients paying on time (or early!), but you also need to make sure you aren’t paying too much too quickly. It’s okay to struggle a bit in the beginning, but make sure you have a plan of action when things get tight to avoid finding yourself in the business graveyard.