One of the biggest challenges for any startup is the ability to have positive cash flow at all times throughout the year. When times get tough and profits decline, you may feel a pinch in your working capital and you need a way to build these monetary reserves to their peak. The reverse is true when profits skyrocket and you are making money – you feel the beneficial weight of some additional funds sitting in your ready-to-spend cash flow reserves. However, you should match this cyclical trend with positive cash flow throughout the year. Here are some ways you can maintain positive working capital throughout your sales cycle.
Avoid overspending
One of the easiest ways to control your cash flow is to stop overspending when the need really isn’t there. It may be tempting to buy the latest and greatest of everything for your business, but if tomorrow’s sales are down, you’ll find that your stocks are a little thinner than normal. Spend wisely on what you need to make your business startup survive each day. This can help you have the cash you need when a problem arises without struggling to get financing.
Stay on top of billing
Getting paid for the work you’ve completed is a chore for any startup. It’s no fun chasing late payments, but it’s your responsibility as a new business owner to make sure your billing is on time and paid. Getting your billing in order can ensure that you have a steady stream of income and can ensure that there is money left for positive cash flow at the end of each month.
Track daily costs
Keeping good track of your costs throughout the year can help you better identify where you are overspending. You may need to monitor your expenses, but without tracking them, you have no way of knowing where your cash flow is going each day. Keep track of all the expenses you make every day and review them to see where you can reduce them. You may be making unnecessary purchases that are increasing costs and affecting your working capital.
Keep a cushion
If you know your business start-up struggles from time to time with your working capital, you can plan for these times by setting aside a cushion of funds that you can rely on when you need it. This can make your slower months easier to bear and provide you with a solid reserve you can count on when an emergency arises. It can give you some added assurance that you have the funds when earnings drop and keep you in the black throughout the year.
Estimate future earnings conservatively
When you look ahead, it can be easy to overestimate what your income will be next year. You can anticipate sales that don’t go through or that unexpected circumstances could arise. To maintain positive cash flow, be realistic about your future earnings and plan for the unexpected so that you don’t end up in a situation where your working capital vanishes without warning.
Increase in sales
While it goes without saying that increasing your sales can help you increase your cash flow, this is one area where startups can lag behind. Think about the ways you can add value to your offerings and entice customers to buy more than ever. Bundles and add-ons are easy ways to get a customer to spend more with you and help you increase your sales in a given month. You need to consider all the ways you can bring each transaction to its maximum value so that you can have that extra working capital after your accounts receivables, payroll, and expenses have been paid.
Secure a short-term investor
Short-term angel investors are a sure way to jump-start your business and get the financing you need to help you with your cash flow problems. They can help provide financing when times are tough and allow you to breathe a little easier with their financial support. A short-term angel investor can provide you with money to grow your business while maintaining the daily flow. Paid for in a shorter period of time, these initial investors help give you more flexibility and provide an alternative means of raising funds for your business start-up.
Create loyal customers
Turning your customers into loyal followers who frequent your business on a regular basis can help you increase sales and increase your profits throughout the year. These repeat customers can give your business startup the boost it needs while helping your working capital grow with each purchase. When you can count on a customer to return to your business, you not only guarantee another sale, but you also make it easier to forecast future sales and prevent your cash flow from falling into the red.
Keep inventory lean
Making sure you don’t overflow your inventory can also avoid negative cash flow for your startup business. Practice being lean and only have the inventory you need at any given time. This can make a difference in the bottom line of your business and improve your cash flow situation. Having products and materials on hand can be good, but it can affect your ability to have cash reserves when you need them most. Keeping inventory to a minimum requires special skill, but you will find that your operations are just as efficient and you won’t have to wait months to sell your order book, which will affect your monthly working capital.
Taking stock of your cash flow on a daily basis can ensure that it flows positively each month. These simple tips can help you stay on target and make your working capital less of a concern for starting your business. Planning ahead, staying lean, and increasing your sales will ensure that you have the cash reserves you need to keep your business afloat throughout the year.