Guide
What’s the one thing that makes startups work differently? They strive to survive – which makes cashflow management one of the core goals of the business. Over the years, we have seen several startups and small-scale businesses eventually go out of business or take an exit from the market. Why does it happen, and why does it happen more likely to startups? Is it the lack of funding, or lack of belief from investors to take on a challenge that disrupts the status quo? No – it’s not. According to CB Insights, several well-funded startups with investments of over $1M eventually ran out of business. When they uncovered why it happened, it turns out it was mostly because of 3 prevalent reasons where cashflow management stands as on the primary:
• Cash Flow Mismanagement
• Financial Frauds
• Being hit by the pandemic
Small scale businesses exit when they run out of money. But it doesn’t have to be this way. Effective cash flow management for businesses can help them thrive through the highs and lows of market fluctuations, whatever the case may be. Here is a compilation of the top 3 tips for cash flow management, specially curated for startups.
As the owner of a startup, you’re most likely to consider your startup as your brainchild, and it only makes sense to stay on top of the whereabouts of what keeps it running. This is where cashflow management should come into play. Firstly, yes it happens to be you and your team that runs the business, but it’s cash that keeps the blood pumping. Know how your cash is performing, where, how, and when cash is entering and exiting your business. One way to do it is to reconcile accounts daily – so you’re aware of the whereabouts at the end of each day. It’s best to invest in error-free automatic reconciliation and save valuable time and resources.
How does it help? It helps you in understanding what profitable accounts to focus on, and which accounts are leaking cash. This will help you manage your businesses with clearer ideas in mind and streamline your focus on cash profitability and positivity. Having organized accounts will help you establish a bird’s eye view of your business and help you prioritize and understand your goals and milestones and play as a red flag, warning you before time when you need to pivot or source a new MVP into the market. Messy books consequently lead to a messy business
An article published by the Silicon Valley Bank talks about establishing habits and rules to manage cash effectively. But what can these habits be? These spending habits and rules should require staying updated with cash documentation – this includes receipts and deposit slips. This will help you establish a vigilant eye on all incoming and outgoing cash, so managing accounts close to month-end is no trouble for your finance team.
Establishing spending rules also helps businesses cut down frauds or minimizes room for errors since each transaction is recorded and maintained. It is best to invest in cash management software that helps you manage detailed account information in one place.
Turn inventories into cash as quickly as possible. Although businesses hastily work on collecting receivables, they often seem to miss out on the opportunity that comes next – converting that cash into cash available for reinvestments. For startups and small businesses, it is essential to have cash available for investment opportunities to fight the tide, iterate with market trends and compete with bigger sharks. Accelerate cash to digital conversion so finances are always an asset. Automating the cash collection process is one of the ways to do this – which counts cash and settles it within your bank account almost instantly, without having to wait for days. This helps businesses focus on reinvestment, and growth and stay ahead of credit terms – making investments and payments easier.
Loop is helping startups manage their cash with easier book-keeping, reconciliation, and instant cash conversion so businesses can focus on growth – and that’s what’s important. Simplify operations with simplified cashflow management. Chat with us and find out how we can help – it’s that simple.