While you would think lack of sales would be the number one money problem a start up may face, more often than not, the top spot goes to cash flow issues. Money is being made, but not being managed properly, and when this happens, your business will suffer greatly.
Fixing cash flow issues requires a few things. First, you have to take the time to go over your business with a fine tooth comb to see what is happening with your money. Secondly, you must be disciplined in carrying out the changes you know will improve the situation. And third, realize this isn’t a set-it-and-forget-it-type-thing. You need to regularly check in, and see if you need to make any adjustments. Here are just a few helpful hints to get you started.
1. Don’t Spend Money When You Really Don’t Need To
This one may sound a bit obvious, but many start ups don’t heed this advice. In an attempt to build the business as quickly as possible, there is a tendency to take on expenses that just aren’t necessary.
Sure, you will need a few employees eventually, but if contractors can get the job done for now, use them as needed. Paying for full coverage contractor insurance now could save you an endless headache and considerable cash later. Don’t rent a huge office space if revamping your home office will suffice for now. Unnecessarily burning through precious capital, and increasing your debt is not a smart move when you have yet to turn a profit. Remember simply throwing as much money towards your business as possible does not ensure faster success.
2. Hold Onto Cash as Long as Possible
Paying our bills once we get them definitely feels good; a weight has been lifted. We feel financially responsible. But, if you are trying to improve your cash flow situation, you may want to reconsider this tactic. As long as your bills are paid by the due date, vendors, credit card companies and the like are happy. If your payment isn’t due until the 30th, why send it in on the 11th? Unless of course, you are getting some great deal from a vendor on an early payment, pinching your cash flow may not be a good trade-off.
3. Handle Receivables the Right Way
Poor handling of receivables is a major problem for many start ups. Payments are not tracked carefully. Maybe you fear alienating customers by going after them for late payments. You are not screening carefully enough, and are taking on clients who are not good with payments. Address these issues stat.
If possible, request at least partial payment before delivering a product or service, perhaps after the first couple of orders so customers know they can trust you. If your net 60 terms are killing you, reach out to clients about changing them to a shorter payment period. Offer discounts for early payments; while it might seem counterintuitive to reward late-paying customers with a discount, it might be worth it to get that cash in the door faster.
4. Get a Merchant Account
Merchant accounts may cost you each time someone uses a credit card to pay you, but when it comes to getting paid as quickly as possible, using credit cards takes the cake. Don’t just sign up for the first one you come across—do a little bit of homework to ensure you find the company that best meets your needs. Encourage customers to pay this way.
5. Research Your Financing Options
Get familiar with the different financing options available to you should you really find yourself in a cash crunch. Perhaps you could look into factoring receivables temporarily. There are many companies that offer short term loans for businesses just like yourself, and may be a faster and easier option than traditional financing through a bank to achieve ends such as purchasing equipment.
6. Offer Stock as Compensation
If you are starting up with a team of people, consider offering stock as compensation, at least partially, until you start turning a profit. Not only will this aid in keeping cash on hand to grow your business, it will light a fire under your team to start making money as soon as possible.
So, there you have it—six powerful tips for improving cash flow, and helping you reach your business goals.