Managing Cash Flow for Startup Businesses

How startups can effectively manage cash flow

While it is ideal to pay on time, sometimes your business may face difficulties meeting deadlines. Therefore, prioritise paying the most important stakeholders first.

1. Costs to Prioritise when Cash Flow is Tight

When your business is struggling with cash flow, focus on covering these costs before anything else:

Taxes

Payroll, sales, and income taxes should all be sent in by their deadlines. Tax collection agencies could charge penalties and interest-—and in extreme cases—face criminal charges for not covering payroll taxes.

Rent and Utilities

Missing utility or internet bills could cause those services to be shut off, and missing rent payments could also lead to eviction. All of these are detrimental to workspace productivity and should be prioritised.

Key Vendors

If your startup depends on certain vendors to keep the business running, make sure to pay them on time. Otherwise, they could demand stricter payment terms, limit sizes of future orders, or cut you off completely.

Payroll

Workplace morale can be significantly affected if your startup's employees don't receive salaries on time. Even if you catch up soon after, your top workers may already be looking for a more reliable source of income elsewhere.

Secured Debt

Secured debt is backed up with your business' property. If loan payments are missed, the lender can seize your assets and leave your business unable to operate.

2. Be Smart about Hiring

Recruiting a small but highly skilled team will save your startup the cost of hiring multiple mediocre staff.

Yes, it will cost more in salary and benefits to hire a highly-skilled worker that can do multiple tasks. However, that amount will still be less than paying for the work of multiple mediocre employees.

3. Maintain a Cash Reserve

Due to the unpredictability of businesses, a cash reserve will be beneficial to cushion blows and lessen the impact of any shortfalls. This gives your startup time to solve periods of cash flow issues while concurrently allowing you to grow.

4. Negotiate Terms for Receivables

Ensure receivables are 'due immediately' and have someone keep an eye on them. Offer customers a discount to pay early if your startup prefers earlier payments.

Do so by enforcing standards that state the eligibility for these discounts to maintain a healthy cash flow.

5. Negotiate Terms for Payables

Similar to the previous point, try negotiating with your suppliers to extend the payment terms given. By getting your receivables earlier than making payments for your accounts payable, you ensure that you're getting positive cash flows, preventing potential issues.

6. Prioritise Control on Spending

Focus on essential purchases. Minimise spending and eliminate costs not necessary for your operations until your startup is profitable.

Know the difference between what's necessary and what is 'nice to have'. This can apply to everything from office space to any subscriptions that are yet to be cancelled.

Any cash saved from these spendings ultimately goes towards growth.

Sometimes, choosing the right business account will help cash flow more than you think.

A business account allows business assets and expenses to be kept separate and cash inflows and outflows to be tracked effectively.

Depending on the kind of business, the type of banking services your startup needs could differ from your competitors.  

Here are some factors to consider

Volume of Business Transactions

Depending on your business needs, there are many business accounts to choose from in the market. From high volume banking transactions to low volume banking transactions.

Choose a business account that caters to the type of startup you're running.

Initial Capital Outlay

Banks will require an initial deposit to open a business account. If your startup has low starting capital, opt for an account that doesn't require a high initial deposit.

Minimum Account Balance Requirements

Look for business accounts that can waive off your startup's minimum balance requirements in the initial months. The initial periods are when your business is capital intensive.

A business account that offers this reduces the costs of maintaining your business account.

Services Offered

Beyond transactions, your startup should also look into services such as business internet banking, mobile banking, debit cards, and network of bank branches.

Prevent Bank Fees

Take note of the different types of fees that business accounts can charge. Such fees are:

• Account-related fees
• Fall-below fees
• Cheque-related charges
• Over-the-counter fees
• SMS notification fees.

Ideally, aim to prevent or reduce paying for these fees.

The Aspire Business Account

Aspire's Business Account (Debit Account) is targeted specifically towards startups by providing an easy user experience, fast account openings, and transparent fee structures.

Your account can open your account online in a few minutes. It is free and comes with a credit limit that can be approved in 24 hours. The credit limit can be used for daily expenses, virtual B2B payment, and other tools to help startups manage their cash flow.

Conclusion

Launching a new business can be exciting. However, getting caught up and neglecting small yet important details can potentially lead to failure.

It doesn't matter how many investors your startup has, or how profitable you are; effective cash flow management will have a large impact on your startup's business operations.

Take the necessary steps to ensure your business is healthier by knowing what to prioritise, and choose the right business account for your startup's needs.