Cash Flow Hacks Every Startup Should Know
If you are a founder, then you already know the odds are against you. Let’s face it most do. Well, it turns out there are some simple hacks you can use to dramatically improve your chances of success. While every startup should know these hacks, most don’t.
Lucky for you, here is a list of cash flow hacks every startup should know:
Know Your Breakeven.
Running a startup is a constant struggle between building a great product, finding customers, and making money. Somedays you might even want to give up as you might never be able to accomplish all three.
However, the best startups don’t get overwhelmed by the challenge. Instead, they know their breakeven point and what actions they need to take to reach it. Maybe it is reducing their Customer Acquisition Costs (CAC) or tweaking their Total Lifetime Value (TLV) to make it happen. As Zappos founder, Tony Hsieh said ‘chase the vision, not the money and the money will end up following you.’
Track Your Cash Flow.
Too many founders neglect to focus on cash flow. Sure, profit and loss is important, but in the short-term having enough money flowing through the business to keep the lights on is the goal. As such, you need to track your cash flow on a weekly or monthly basis to know how much money is coming in and how much is going out.
Doing so will force you to prioritize what is most important for your business to grow. In turn, this will help you to be lean and more agile than your competition. Don’t just look at your business’s cash flow. Take a few minutes every week to check your personal cash situation as well. You have a lot on the line as a founder and the last thing you want to do is to ruin your personal finances while trying to grow your business.
Know Where Cash is Coming From.
For most startups, the cash received from sales is not enough to keep the lights on let alone grow. One option is to look for investors, but this requires a significant amount of time and energy. Another option is a loan, but this means you need to be in a position to pay it back.
They key point here is that you need to know where your cash is coming from. Doing so, will give you a better understanding of your working capital requirement and how you are going to meet them. Taking the time to review where cash is coming from will force you to be proactive if a crisis is looming.
Remember, growth requires cash and sometimes this can’t be funded by sales alone. Check your sources of capital and make sure it is enough to meet your goals.
Make Sure You Get Paid.
It doesn’t matter if you are selling an app or cupcakes, you need to make sure you get paid. This starts by making sure you have a clear process in place for invoicing and that every invoice is accurate. If not, then you will run into payment delays which will hurt your cash flow.
Another thing to look at is how you process payments. You want to make sure you review several solutions to compare the costs and the time it takes for cash to land in your bank account. Also, talk to your bank to see how long it takes for them to deposit payments. Each day matters when you are trying to get paid, so make sure you understand the process inside and out.
Pay as Slow as Possible.
While you don’t want to get a reputation for late payment, there is no reason to pay early unless your suppliers make it worth your while. This might be a discount or some other incentive which offset the time value of paying early. Even if it is one or two days, you want to make sure you are getting the full use of your money, so don’t pay early if you don’t need to.
Eliminate Bank Fees.
Bank fees are costly for any company but for a startup they can be a killer. Look, you are probably not profitable, so why are you handing over precious cash to your bank? To eliminate these fees, you want to talk to your bank and see what programs or options do they have. In addition, you might want to shop around. Many banks have small business account options but the specific vary from bank to bank so it behooves you to find the option which best fits your needs.
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