Don’t underestimate your start-up costs
Starting a business is expensive, no matter what it is that you’re setting out to do – so ensuring you have enough of a budget is key to getting cash flow right first-time round.
Make sure to leave additional room and create a cash flow buffer for those start-up costs that you didn’t anticipate (there will be lots of them!)
Don’t overspend on unnecessary items
As a new business, there is often a lot of excitement about launch. Equally, if you’ve launched and your business is taking a step in the right direction, it can feel very promising. As a result of these high emotions, small businesses can often be tempted to spend out and ‘treat themselves’ on luxury items for the business, the office, and employees.
While spending on some things can be a good idea for company efficiency, tax management and general wellbeing of the business - it’s easy to get caught up and ignore the warning signs that your cash flow is not where it should be.
Once you overspend, it is more difficult to undo the errors of poor cash flow management. You might need to take out a business loan or make cutbacks later on. Save yourself the hassle later and be wary of overspending.
Be clear with clients about your invoicing terms
Of all the challenges surrounding cash flow, one of the biggest factors that lead to poor cash flow is customer invoicing. According to our latest report, 54% of SMEs have experienced overdue payments. Further, 35% of SME owners have had to rely on overdrafts to get by each month.
To put yourself in a healthy cash flow position, get advice on your invoicing terms from a reputable source and be clear with your clients from the offset. In doing so, you’ll reduce the amount of time spent chasing clients for payments as they are more likely to pay on time.
At The Finance People UK, we’d highly recommend this as a high priority – it is much easier to get those invoicing terms right the first time and avoid the time, stress, and hassle that surrounds invoicing.
Make sure to create a cash flow forecast
A lot of start-ups think they do not need a cash flow forecast because they are too small. However, this could not be further from the truth!
Creating a cash flow forecast is essential for start-ups and established businesses alike – and will help SMEs maintain a healthy cash flow. Keeping tabs on this right from the offset will keep you in good stead for ensuring you do not make any of the 7 most common pitfalls of cash flow and will ensure you have good visibility of your upcoming overheads and how much money is in your business.
Constantly evaluate your costs and track your cash flow
It’s no use doing all the above if you’re not keeping check on your cash flow forecast, monitoring your outgoings and expenses, and tracking your income and profits. You should always have full visibility of your finances – this will put you in the best possible position to have a healthy cash flow from the start.
Setting these best practices in motion from the moment you begin working on a new business will put you in good stead to maintain a healthy cash flow as your business grows. This will ultimately put you and your business in an advantageous position for the future!
Want to put your energy into business growth and less into finances?
When launching a new business, there are so many areas that an owner needs to give their attention to - strategy, sales, marketing, operations, logistics, finances, and more.
To really give your new business the time and energy it deserves, reducing the time spent on accounting, finance, and cash flow management can be very beneficial long term – freeing you up to focus on growth.
At The Finance People UK, our experts have years of cash flow management under their belts. We offer SMEs and start-ups the opportunity to outsource cash flow management, to ensure they are on the right path for a promising and healthy cash flow for years to come.
From providing snapshots of cash inflows and outflows, to longer-term planning to support your future, our experts will do everything in their power to ensure your business is in a good place.