Cash Flow

5 Things Every Startup Needs to Know About Cash Flow

It’s a sad truism that the first time many new businesses think about cash flow is when they hit trouble. However, this reactive approach is almost certain to create difficulties, and a business that plans ahead is a business that’s much more likely to succeed. So what does your startup need to know about cash flow and what steps should you take?
  1. It’s Not Whether You Get Paid. It’s When
    Ninety-nine percent of the time, your invoices will get paid without problem. However, it’s time that is the issue. If your customers drag things out, you will still have to pay your staff and suppliers, creating cash flow problems. Identify potential sources of business finance early and put agreements in place before you start trading and you will be able to borrow if you hit a bump in the road.
  2. Look At The Big Picture When You Consider Borrowing
    Many businesses are reluctant to borrow when they consider the costs involved. However, make sure you look at the big picture and consider the costs of choosing not to borrow. Paying your staff late or turning down potential new business will have a far greater negative impact on your business than paying a few hundred (or even a few thousand) pounds in interest and business loan charges.5 Things Every Startup Needs to Know About Cash Flow
  3. Make Sure You Understand The Available Options
    If you’re going to borrow, it pays to know your options. Yet many small businesses are remarkably ignorant about the sources of finance open to them, or the costs involved. Only by understanding all the possibilities will you be able to find the right choice for your business – and negotiate the right price.
  4. Don’t Forget Alternative Lenders
    When most businesses need to borrow, their first port of call is their bank. Before the financial crash of 2008, this made good sense, but since then, they have significantly tightened their lending criteria. If you’re in the situation where the “computer says no,” have a look at alternative lenders: they have completely different criteria, and may be happy to lend against the value of your premises, plant or equipment when a bank is more concerned with your cash projections.
  5. Take a Look At Invoice Factoring and Discounting
    If you can’t persuade your customers to pay earlier (and a small discount is often an excellent incentive), then invoice factoring and discounting can take the sting out of slow payments. These finance options allow you to borrow up to around 85 percent of the value of your invoices as soon as you issue them, with repayment being made when your customers pay you. With invoice discounting, you retain control of your own debtor ledger and pursue your customers for payment. With factoring – ideal for startup businesses without a dedicated credit control function – the finance company assigns experienced professionals to ensure early payment, thus reducing your interest charges.
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