It is obvious that start-ups need to manage cash better than their larger counterparts. The effective management of cash is one of the key hallmarks of a successful organization as without sound capital management, seldom will these start-ups survive till the next round of funding.
Above all, the investors would definitely look at the capital management capabilities before granting additional funds. As such, the stability of a start-up depends on the strength of cash flow, which is the lifeblood of any business.
What is cash flow management? It is basically faster conversion of sales into cash and cutting down unnecessary costs.
The following tips could help a start-up to manage cash efficiently.
8 Tips on Cash Management for Start-Up Businesses
Table of Contents
Iron Out Delinquencies:
Delinquencies are one of the key issues faced by all businesses. For start-ups, these assume more significance as they might be already walking on a tight rope. Giving credit is an option to build a business, but extensive payment delays and an extended Accounts Receivable cycle can have a major impact on working capital.
Start-ups should develop a clear payment system and explain their payment policies well in advance to their customers. For example, an invoice could have a note saying that “Payment should be made on receipt of invoice and any delay could attract interest charge.” Always provide alternative payment methods to potential delinquent customers such as credit card payments or installment plans based on the track record of the customer.
Start-ups should have a strong understanding of their financial position on any given date. For this, the business’ account books should be updated in a timely manner and accurately as well. Timely updates of financial records with latest statements always help businesses to take correct decisions. In addition, it also shows if there is any shortage of cash and prepares the business to take remedial actions.
Establish Effective Payroll System:
It is advisable to have fewer cycles in payroll accounting as it cuts down on administrative costs. For example, implement a bi-monthly cycle payroll account rather than a bi-weekly cycle. Also, credit expenses directly to bank accounts as it saves time and cost of writing and presenting checks.
Utilize Cloud Technology:
Cloud is the new buzzword and it is a real boon for start-ups as they provide advanced technologies and storage solutions and save huge costs of investing in hardware such as servers. There are several productivity tools available in the market that can simplify and rationalize the accounting process.
Leverage Data Analytics:
Nowadays, small businesses have access to built-in analytical tools and technologies that can provide data about each and every aspect of a business and insights about better management of cash flow. Start-ups could make use of these data to control costs and decide their investment priorities.
Have a Good Rapport with the Employees:
There is no denying the fact that employees are the biggest asset of a business. Productive employees can deliver quality work within stipulated time, and that in turn could get more orders and boost cash flow.
Always reward employees who are good performers. If they get rewarded for their good work they will have the motivation to work harder and help the firm touch greater heights.
Always learn from peers and see what they are doing to improve their cash flow. Join a network of start-up groups. The network will allow interaction with experts and share tips. Online sites such as LinkedIn can help you find peers and develop connections with professionals within the industry. Online webinars are also a great way to access financial advice on a variety of topics.
If a start-up does not have the time or talent to keep updated records of cash flow or manage cash, then it is recommended to outsource these key functions. This allows businesses to focus on other important areas, such as production and sales. Small businesses can leverage the expertise of Finance and Accounting (F&A) Outsourcing Services company, in a number of areas including accounting, taxation, payroll, reporting and more.
The present business environment offers fertile ground for start-up ideas, but success in the venture depends on how operations are run, and not just innovative concepts. Sound financial practices will support the growth of a start-up into an enterprise that will have an edge in the competitive market.