7 ways to save your startup from cash flow burn
Save cash flow burn by following these simple steps for your startup. Still struggling to manage, do reach out to benefit from our Treasury Solutions Practice.
It’s a great moment to give your startup’s cash flow a little dusting. Here are some easy tips you can use to try to reduce your company’s cash flow burn.
Set up a cash flow forecast
Focus on your old AR
Monitor your invoicing process & send invoices on time
Instill a proper collection process
Create an emergency reserve
Review options for the price increase
Review your cost structure and identify the areas of saving.
Set up a cashflow forecast:
“Cash is King”. For any startup to avoid a cash flow burn, it is vital to monitor the cash flows consistently. In addition to ascertaining profits and earnings from the accounting point of view, the ascertainment of the amount of cash that goes in and out of the business is crucial. Cash Flows can be simply calculated by the formula Cash Flows = Income – Expenditure. This will help gauge the current cash position of your startup and help your startup stay out of the burn. Set up a cashflow forecast and keep a track of your cash flow position. A sales forecast is basically a tool that helps your business to estimate and predict the units of goods and services that can be sold over a period of time. For a detailed explanation of creating a cash flow forecast, check our ‘Steps to create a cash flow forecast’ blog.
Focus on your older receivables:
Your startup accountant should be helping you know which clients owe you cash to make sure you know when the oldest of these will be paying you. Proper management and collection of receivables play a crucial role in saving your startup from cash flow burn. The greater the time frame you provide for your customers to pay back their receivables, the greater the risk of cash flow burn. Have a record of periodic receivables due and make sure your collection team works consistently and effectively. To provide an incentive for customers to prompt payments, discounts could be offered.
Monitor your invoicing process & send invoices on time:
Having an efficient invoicing process in place in the organization can help your business in achieving prompt payments from your customers. The entire process should be carefully planned and monitored. When invoices are sent out to the customers, make sure all the necessary details which the customers require are included. Please note that different customers have different requirements when it comes to invoices.
Instill a proper collection process:
One of the sure-shot ways to protect your business from a cash burn is by instilling an effective collection process. This can be done by establishing a system for collection within your organization. Establishing a Scollection system will provide your business with a direction as far as receivables management is concerned. For example, businesses must send out invoices promptly and provide reminders once the payment is due as well as when it becomes overdue. Accepting different modes of payment from customers would help speed up the process and ensure efficiency in the collection process.
Create an emergency reserve:
“It’s better to be safe than sorry”. Every startup should create an emergency reserve to protect themselves from unprecedented times. The COVID-19 pandemic has underlined the importance of being prepared for uncertainties. This emergency fund can prove fruitful during times of low cash conditions.
Review options for the price increase:
It's an open secret that monitoring clients' usage is sometimes done manually. Therefore, the company can use the spring season as an opportunity to check if any clients should be upgraded, as they tend to move up in how much they pay, the more they use the service.
Review your cost structure and identify the areas of saving:
Your startup can stay away from cash flow burn if you monitor and reduce your expenses and identify areas of savings. There are several ways in which you can reduce your costs. One such way is to outsource all such services which do not form a part of your core business. This in addition to reducing costs, will help bring great expertise to your business in that department. It is very important to prepare budgets and stick to them. Initially, one should not go overboard with marketing and sales costs. All recurring expenses can be regularly reviewed and negotiated.