10 Tips on Managing Cash Flow as a New Business

Written by Anni Mari Wyk

On Oct 4, 2019

It’s important for new businesses to thoroughly understand that running out of money is one of the primary reasons that most businesses collapse shortly after a launch. Start-ups can avoid being counted amongst the failed businesses statistics by being smart about how they spend their capital.

Two-thirds of all small businesses experience cash flow problems from time to time in the early stages. And on top of that, one out of every five small business owners indicate that cash flow problems are actually the norm—not the exception.

To avoid this, take all the necessary steps to ensure your business will be healthier by making use of these 10 tips on how to manage your start-up’s money.

 1. Get a 360-Degree View of Your Cash Movements

One of the first things to do is to understand the big, clear picture when it comes to your cash situation. To accomplish this, you’ll need a cash flow statement and a cash flow forecast every month.

A cash flow statement, like your bank statement, gives you a view of your cash situation at a point in time and is typically prepared at the end of each month to show you the flow of your finances.

 2.  Work on A Budget and Stick to It

Working on a budget is important for cash flow management. When you budget, you gather all your company’s financial data, including your business’s total income and monthly to help you see where you can save, and evaluate if you’re overpaying for anything

 3. Be Smart When It Comes to Debt

Debt is common in most businesses but must be avoided at all costs. Accepting a loan can be a useful way to get start-up funding, capital equipment, or new office or storefront space. The key factor when borrowing is to make sure the return is greater than the investment. Get financial advice and make sure you make smart financial decisions for your business.

  4. Better Management of Funds.

The best way to ensure that your business has maintained cash flow is that you don’t handle your finances yourself. That includes tracking them and handling your entire accounting. Rather just hire an accountant or CFO to manage this specific task for you.

Another simpler alternative is using a service and software platform which would provide accounting software that would make cash management easier for you and the business.

5. Help Your Customers Pay You Faster

Unpaid invoices are a big factor in cash flow for your business and plays an important role in the success of the business as well. To better manage your cash flow, you can help your customers pay you faster by:

– Invoicing promptly, finding out how your clients prefer to pay to make sure you are properly set up to receive payments without any technical delays, making sure that your invoices are neat and legible and have all the information that your customers may need to make payment.

6.  Save For Rainy Days

One way to stay ahead of cash flow problems is to maintain a financial cushion for rainy days, usually in the form of savings. Although this may not always be easy, for small businesses – it will come a long way when the business is taking strain and facing shortfalls. Start small and use your cash flow forecast to inform your savings plan.

 7.  Keep Your Cash Working

When saving for rainy days, make sure that you keep your cash balances in interest-earning accounts, which are available at most local banks. You might encounter a minimum balance requirement, however, interest rates on these accounts are often lower than those of savings accounts, and you may get reasonable interests in the process.

 8. Spend Only on Essentials.

When you do your monthly planning and budgeting, it’s vital to also forecast spending and expenses, with this – you need make sure that you only spend on what is necessary. Prioritize minimal spending and eliminate costs that are not essential to your business’ operation until you’re profitable enough.

9. Be Strategic About Your Growth

Rapid growth can often result in cash flow issues. Winning a new contract can mean you need to invest in new employees, this will mean that you will be spending more in salaries or benefits to get the best candidate. The best advice is – only hire when you need to and hire people who will bring you value.

 10.  Know When to Lease and When to Buy

Naturally, all businesses need equipment, facilities, systems, and property in order to operate.

If your business is in challenging financial times, it is advisable to opt for leasing equipment and renting retail or office space rather than buying it. In addition, when you choose to lease some items, you won’t have use large amounts of your capital, meaning that your business will be better positioned to respond to new opportunities and address unforeseen challenges.

Cash flow management take practice and a lot of work, but it critical for the survival of your new business.

 “Never take your eyes off the cash flow because it’s the lifeblood of business.” —Sir Richard Branson, business magnate, investor, author and philanthropist

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