Cash is the lifeblood that sustains every business. Far too many business owners fail to manage their cash flow properly.
Albeit statistics consistently show that running out of money is one of the main reasons new businesses go under.
Trying to run a business without carefully managing your cash flow is like fighting a rising tide: sooner or later, you’re going to find yourself underwater. If your business generates healthy revenue, you can still experience the occasional cash crunch—which is especially true during your first few years of operation.
To avoid joining the ranks of bankrupt startups, get smart about boosting your cash flow by implementing these five strategies.
1. Get Professional Support
To save money, many new business owners try to manage their books on their own, but this is a significant mistake. Managing cash flow is too time-consuming, complex, and critical to your company’s survival for you to fit it in with all of your other responsibilities. In fact, the very first team member you hire should be a professional bookkeeper/financial manager.
Effective cash-flow management is the foundation upon which all of your company’s financial and tax strategies are built. And it needs to be done correctly from the very beginning. With this in mind, even if you’ve yet to earn any revenue, you should consider paying for a bookkeeper out of your own pocket.
Hiring a highly experienced bookkeeper with whom you can build a tight relationship might require an investment of time and money upfront. Still, the ultimate payoff in your financial strategy and tax savings will be more than makeup for the initial effort and expense.
If you need support in finding the right bookkeeper, work with us, your Family Business Lawyer™, for guidance. We can refer you to bookkeeping professionals in the area we trust most to ensure your company has the proper financial oversight from the start.
2. Implement Financial Systems
Above all, effective cash-flow management requires sound systems. Suppose your company’s financial systems and processes aren’t set up the right way from the start. In that case, even a skilled bookkeeper isn’t going to fix them magically.
As your Family Business Lawyer™, we specialize in supporting startups to set up effective financial systems. We will help you put the proper procedures in place to manage your cash flow. And ensure your company has a rock-solid financial foundation that won’t suddenly collapse when the going gets rough.
3. Closely Monitor Accounts Receivable
Many startups experience negative cash flow simply because they don’t stay on top of accounts receivable. You must ensure that your customers pay you on time and in full. Accounts receivable that go unpaid for too long are more likely to get overlooked and go uncollected.
Your bookkeeper should keep track of all accounts receivable and include them in the monthly financial reports that they submit to you. Having these details included in your reports will not only keep you apprised of your company’s financial health. But it can also allow us to assist you better if and when you ever need support with collections.
4. Get Paid Upfront
One of the easiest ways to boost your cash flow to eliminate headaches is to have your customers pay their bills upfront the soonest time possible.
If full payment upfront isn’t feasible, requiring partial payment as a deposit will improve cash flow. To encourage quick payment:
Consider offering discounts for upfront or early payment. At the same time, have a firm policy that penalizes late payments.
Make sure your sale agreements clearly spell this policy out—and you consistently enforce it with all late-paying clients.
5. Maintain A Cash Reserve
It is pretty common for every startup to experience revenue shortfalls. And your company’s survival will likely depend on how you handle these lean times. To shield your company from the inevitable slow periods and unforeseen emergencies, try to maintain a cash reserve—even if it’s just access to a line of credit.
Having a reserve to fall back on will not only protect your company’s financial health. It can also save you from the stress and desperation that comes from unexpectedly running out of money. Nothing will kill your team’s morale—and your company’s growth—more than finding yourself unable to cover payroll.
Keep The Cash Flowing
All the vision and passion in the world won’t keep your startup afloat if you fail to manage your cash flow properly. That said, you don’t have to be a financial genius to keep your revenue flowing freely—you just need the proper systems and support. As your Family Business Lawyer, we can support you with both.
We will assess your current financial systems and advise you about additional ways to shore up any weak spots in your company’s foundation. Getting a handle on your cash flow will prevent your startup from running out of money. It will also free up your time and energy to focus on the big-picture responsibilities needed to ensure your business not only survives but truly thrives. Contact us today to get started.
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This article is a service of Sky Unlimited Legal Advisory PC, Personal Family Lawyer® . We're not your traditional law firm, we stand apart from the rest by helping you make informed and empowered decisions on how to deal with your business throughout life and in the event of an emergency. We offer a complete spectrum of legal services, including a New Business Planning Session or an Existing Business Review Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. You can begin by calling our office at (650) 761-0992 today or book online to schedule a Business Planning Session and mention this article to find out how to get this $950 session at no charge.
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