Top Tips to Improve Your Cashflow as a Startup

Managing cashflow is an integral component for every successful business. Even if you’re profitable, if cashflow isn’t well managed you could find yourself struggling to keep the business financially afloat.

It’s good to get into the habit of good cashflow management from the start, whether you are using business loans, merchant cash advances or smart business acumen. However, with so many things to keep track of as a startup, learning how to improve your cashflow on top of everything else can feel overwhelming. That’s why Pheabs have put together a collection of top tips on the subject from experienced professionals across business and finance!

Here, entrepreneurs and other industry professionals share their experiences with cashflow management, the lessons learnt and top tips for startups looking to take better control over their business.

 

Our Industry Experts…

 

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Simon Taylor, Managing Director of Get Indemnity

 

 

“40% of start-up’s fail within the first 5 years of incorporation, a failure to properly manage cash flow is the leading cause. Money is the lifeblood of any business, and therefore cash flow management is ignored at your peril.”

“Controlling your spending levels is integral to any small businesses. It’s advisable to use a software that can automate the process. Using spreadsheets and tracking daily spending is very time consuming and start-ups need to focus on generating turnover. Software can also provide a level of cyber security and removes the risk of human error.”

“Building cash reserves is an essential protection against the ebb’s and flows of business, in personal life it’s considered having a rainy-day account and the business world is no different. Regularly making deposits, is the safest way to protect against the business shocks like Covid-19, cash reserves also provide potential to move quickly on business opportunities.”

“Collecting money owed ASAP, it’s understandable for start-ups to let customers get away with late payments when they only have a small number of clients in order to. Of course, it’s important to keep customers happy but it could be fatal to your business if you don’t take insist on prompt payments.”

 

Sahil Sethi, Co-Founder of Maji.io

 

 

“A positive cash flow in simple terms means that more cash comes into the business than goes out of it, which is essential for any company to survive and prosper in the long-term growth – whether in fintech or consumer-facing or in trade.
A consistently negative cash flow puts a company in serious jeopardy, even though many UK companies in growth mode routinely burn through more money than they bring in. But you can’t sustain growth without good cash flow – it will eventually catch up with you.”

“My advice is to write a robust business and financial plan and track your financials against it consistently. Know what you are going to spend on and when, where you’re going to take a financial risk and forecast your growth. This plan should take into account the tax payments you need to make and it’s also wise to separate a pot of cash for unexpected challenges.”

“Check your business bank account daily and keep on top of payments that haven’t come in as these could quickly turn into bad and slow debts.”

“A healthy cash flow gives you the peace of mind you need to focus on things that will “move the dial” for your business rather than worrying about keeping the lights on all the time”

 

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Josh Cooling, Founder of Paint Your Pup

 

 

“People told me it’s unlikely I’d make a profit in my first year. I didn’t realise they’d be right!”

“Navigating through quiet months, late payers, refunds, and unforeseen expenses is all part of running a business. Startups have to do a lot more with a lot less these days so watching the pennies is more important than ever.”

“My top advice would be to invest in a quality finance tracking tool and USE it! You’ll quickly see where you need to make up ground and identifying market trends becomes a lot easier.”

 

Phil Drinkwater, Business Coach

 

 

“Startups have a challenge in ensuring expenses don’t exceed earnings, or at the very least, while using invested capital, the cash burn rate isn’t too high.”

“It’s critical to keep track of your finances in order to accomplish this goal. Whether you utilise a modern online bank that immediately informs you of all your spending, or accounting software, make sure you’re aware of all your expenditures at least once a week.”

“Budgeting is essential for keeping your new business afloat. If you know you have £10,000 to set up and predict it to take 10 months to become profitable, you’ll have £1000 every month. However, you should also plan for unknowns, so it might be best to halve that. Hopefully, as your firm grows, this situation will improve, but in the meantime, it’ll ensure you don’t overspend.”

“Budgeting also assists decision-making by exposing whether you can afford your desired option, or if you must accept a lower-cost option. It also allows you to be more prudent with any purchases you assume are required, as you may find alternatives if you get creative. For example, looking for VA’s abroad in Asia and considering sites like AppSumo – where you get lifetime deals on software – can help you save money each month.”

“Negotiating with suppliers, asking for payment upfront, proposing a service swap where no money changes hands, and not paying others until you’re paid are a few more options.”

“In summary, don’t be afraid to be creative, and ask for what you need.”

 

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Chris Stott, Managing Director of PPC Geeks Ltd 

 

 

#1. “Have some (seriously) – Get your first paying customer. This is your single focus in a startup. The sooner you do this, the sooner you can invest in getting your next one and so on. It validates you and your business. You don’t need to spend cash to start a business on a fancy logo, website or another other ‘insert shiny object here’. Just get started and have the confidence to get paid for the product/service you provide.”

#2. “Look after the pennies – When you start every penny counts. Make sure you are putting it towards what moves the needle for your business. As you grow and you are in positive cash flow you can invest your money a.k.a spend it on things that make you more money down the line…like more marketing.”

#3. “Know your numbers – things can change in business, quicker than you ever imagined. Try and build up a cash reserve to weather the peaks and troughs. Know your monthly break even point and your trajectory. When you know the numbers you can make decisions based on data, not emotion which, often with financial decisions, is the most important when you are starting out. Trust your gut, yes, but know the numbers!”

“Good luck.”

 

Michael Buckworth, Managing Partner at Buckworths

 

 

1. “Get accounting software as soon as possible, keep it up to date and review reports at least weekly. The ones our clients tend to use are Xero and FreeAgent.”

2. “Put in place cash flow forecasts before you raise investment and stick to them. Don’t make the mistake of raising money and then splashing out. It’s easy to do but you will regret it later.”

3. “Focus on what is needed, not what is nice to have. Every piece of expenditure must lead to revenue. Classic mistakes are:”

(i) “to build a functionality that is exciting or challenging to deliver but one that clients don’t want or need”

(ii) “paying for “vanity” PR and marketing – seeing your face on the back of a bus may be exciting, but does it lead to any hot leads?”

 

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Sas Parsad, The Gut Co

 

 

1) Set Clear Financial Goals “Setting clear financial goals and creating milestones will allow you to effectively break down the steps to understand how to achieve these goals. Your budget is arguably the most important aspect of your business in the early days, so set realistic goals that you and your team can understand and follow.” 

2) Cash Flow Forecast “This will be hard at first, but try to break it down month by month and over time use data to drive forecasts over longer periods.”

3) Keep an Eye on Overspending “Paying for office spaces, lunches, fancy business meetings, excessive office equipment, among many other expenses can all quickly add up. Try to understand the minimum operational requirements and avoid overpaying for unnecessary subscriptions and other regular outgoings. Remember, there are a lot of free options out there!”

4) Manage Expectations “Too often we see founders expecting to generate profit much earlier than what’s actually realistic. The reality is, you often have to invest and spend a significant amount with little to no return in the early days. I suggest you run your start-up as lean as possible and slowly add new features and staff as and when the time is right.”

5) Know Your Break-Even “You won’t start making on day one so I’d get used to that! Understand your business costs, costs of goods or services, and customer acquisition costs. Get a feel for your operational break-even point per sale. Understand what your start up costs and where and how they were funded (for example, bootstrapped, investors, banks, etc.). Have clear milestones on how that money will be made back and when. Will the money stay in the business? Does it need to be extracted back out? Operating with negative cash flow is dangerous territory, so make sure that you’re on track to reach your breakeven point before you put yourself in a situation that’s financially insurmountable.”

6) Stay Agile and Be Open to Change “Stay agile and be open to change. In other words, be willing to pivot based on early signs and data, and try not to be too emotionally attached to a concept or idea.”

 

 

 

“As a technology startup cash flow is your lifeblood. From the day you start until your last breath, you will be in a furious race against time. No technology startup has a long shelf life without constant innovation. Even the best ideas become terrible ideas after a certain age – and your cash flow has to support that rapidly changing environment.”

Tip 1 The number 1 reason startups fail: they run out of cash. “An investor in my first startup told me ‘When it comes to cashflow you always 1. Need more than you think 2. It runs out faster than you think.’ Fundraise with that in mind.”

Tip 2 Stay on top of it. “From day 1 implement an accounting software package. These days they are cheap and off the shelf. As a founder, you are caught up in hiring, fundraising, strategy, and day-to-day execution. You need excellent financial hygiene, sound spending habits and to know where your cash goes every. single. day”

 

For any questions or comments, please contact us directly.

 

 

David Beard, Founder of Lending Expert

 

 

“For startups, managing cash flow is everything and whilst you need to be aggressive with getting your business off the ground, you also need to be cautious on the costs too, since a startup may take several months or even years before it starts to generate revenue and a profit.”

“There are some very cost-effective ways to start your business, for instance rather than hiring full-time staff, consider using freelancers for just 2-3 days a week. If you have clear structure and targets, you can certainly be productive and get a lot done.”

“Avoid using expensive agencies, especially for web design and development, since this can really start to add up.”

“In terms of office space, think low cost and flexible. Some of the most famous startups to date have started from dining room tables, garages and spare bedrooms and paying for a big office so early on is just another thing to eat up costs.”

 

For any questions or comments, please contact us directly.