Cash Flow Tips for Startups
By: Peter Nyberg
Startups don’t have the best reputation as successful enterprises. In fact, 50% of startups fail within the first 5 years. By year 10, that number jumps to 90%. One of the main reasons for failure is running out of cash.
I say this not to discourage you from diving into your own startup, but rather to show you how important it is to establish proper cash flow. I’m Peter Nyberg and in my time as the CFO of Camino Community Center, I’ve learned a few things about cash flow that I’d like to share with you.
Ready to learn how to make your startup successful? Let’s dive in!
Collect Receivables ASAP
The money you have coming in is arguably the most important piece of the cash flow puzzle. Don’t let your customers drag their heels on payment and enforce strict late payment policies. Net terms shouldn’t be any longer than 15 days to encourage prompt payment.
Be disciplined with customers who pay late. It can feel a little dog-eat-dog, but sometimes that is necessary in the business world.
Incentivize Customers to Pay Early
Rather than just punish people who pay late by fining them, incentivize customers to pay early by offering a small discount. Discounts also serve to foster customer loyalty which will be important for the long-term success of your business.
If you have any employees helping with collections, be sure they are all aware of the discount and when it applies.
Outsource Before Hiring
There are many aspects of doing business that you can outsource. Outsourcing is generally less expensive than hiring, at least in the beginning.
For example, as your company grows, you may eventually need a full-time accountant. Until then, a monthly subscription to an accounting firm will be far less expensive than maintaining another employee.
When you do hire, be selective about who you choose. A motivated, skilled worker is far more valuable to your business (and less expensive) than two mediocre ones.
Minimize Costs
The advice to “spend less” might seem futile when you have bills piling up that need to be paid. However, there are many ways to cut down on costs without sacrificing things that you need for your business.
For example, always negotiate pricing for products and services. Find out if any of your vendors or suppliers offer a discount for paying early and take advantage of it.
Also, be sure to stick to the essentials. There are many “nice-to-haves” in the business world, but don’t have them unless you have the cash flow to support them.
Finally, only order the inventory that you need to cover a week or two more than your lead time. Extra inventory lying around is simply illiquid cash you could be using elsewhere.
Becoming Successful
Without a doubt, managing the money for a successful startup isn’t easy. However, if you follow these tips, you’ll have a much better chance of running one of the 10% of startups that succeeds!
