As a new business, you will need all the help you can get to make it through that challenging first year of trading. The sad truth is that many startups fail to pass their first big hurdle: cash flow. Yes, if you want to make money you’ll have to spend some too.
But, what happens if you’re spending more than you’re earning? Well, you need to come up with ways to keep your business profitable. The thing is; some startups fail because they don’t have a grip on their finances.
Are you going to start a new business soon? If so, you may be thinking about how best to keep your company’s bank account looking healthy. Especially during those early stages!
It’s a good thing that you’ve stopped by this page today. That’s because I will share with you some of my tips and tricks for improving your startup’s cash flow. Here is what you need to know:
Improve your payables
It’s worth ensuring you are smart with the money you owe to people. For example, never pay an invoice well before the due date (unless you get offered a discount). On the last date your invoice is due for payment, pay it by a same-day electronic transfer. Such payments are usually free to make for most businesses.
What happens if funds are low, and you can’t pay your invoices on time? The best thing to do is keep your suppliers informed. Don’t do anything stupid like ignore them or feed them unbelievable and lame excuses. Be honest with them so that you can gain their trust and understanding.
If you’re waiting for a large payment from a client, you might be thinking of borrowing some money. Doing so can help short-term cash flow problems, especially when you know you can pay loans back soon. But, what happens if you’ve got no credit history, or yours it isn’t good?
One option is to consider bad credit business loans. Lending criteria is often more relaxed, so you can get the funding you need. You could also approach peer-to-peer lenders like Funding Circle if your bank won’t help.
Improve your receivables
In case you didn’t know, “receivables” is a term that gets used to describe money paid to your business. One struggle for many startups and, indeed, small businesses, is chasing money from clients.
If you are waiting for a lot of invoices to get paid, it could put a serious strain on your cash flow. There are some practical steps you can take to improve your receivables, some of which are below:
- Early payment discounts. Tell your customers you will give them a discount off their next order with you if they pay up early;
- Agree staged payments with your clients. Do you usually work on large projects? If so, ask for a deposit and then payments at various milestones. Doing so is standard practice in many industries. And it can ease your financial burden if you need to pay for raw materials;
- Don’t offer credit facilities to new customers. It’s important to establish what level of risk your clients pose. I recommend only offering credit facilities once you’ve established a track record with them. And don’t forget to run a credit check on them before setting them up a credit account;
- Always chase late payments. Sometimes when you’re busy, you can forget about money that your customers owe you. That’s why it’s important to set up a system that reminds you of overdue invoices.