One thing that most start-ups have in common is money, or, more precisely, the lack of it. Start-ups operate on a limited budget, keeping their cash flow to a minimum for lack of resources. Therefore, they rarely have enough money to embrace the same activities and investments as any other company. Yet, reduced cash flow is inherent to what makes start-up businesses unique.
Nevertheless, there is a big difference between reduced cash flow and negative cash flow. While the former implies strategic decision making and investment choices, the latter refers to the inability to control expenses and budgeting. Unfortunately, while start-ups typically operate on a strict budget, operating at a loss is no fatality caused by their limited cash flow but the result of financial management issues. What makes cash flow so unpredictable?
You’re a late or disorganized taxpayer
Start-ups are surprisingly confused when it comes to their corporate taxes. A lot of small businesses are unsure about how to report on expenses, financing, and grants. That’s precisely why working closely with a professional accountant or arranging tax preparation franchises can make a huge difference. Ultimately, when you don’t know how much tax you owe and how much you can save, you can find it tricky to keep hold of your cash flow.
You find it hard to fund your activities
It’s in the nature of a start-up to operate on a limited budget. Commercial loans can be inaccessible for new businesses, as most money lenders expect robust finances from their borrowers. Yet, that doesn’t mean that you should rely on everyday cash and personal savings to finance your start-up. A common mistake that encourages cash volatility is the failure to use fundraising to your advantage. Crowdfunding sites, such as Kickstarter for instance, can give your start-up the investment it needs for growth. You can also find an angel investor in your sector, using either crypto investment or reaching out to potential partners or mentors.
You believe negotiating deals is for others
Every business faces unavoidable costs, from your energy to material supplies. Yet, that doesn’t mean that you should take every quote for granted. As a small business, experts recommend reaching out to your suppliers to negotiate contracts and costs. The success rate of cutting down your invoices is low. But you could obtain an advantageous deal that reduces your costs in the long-term, such as free after-sale service or beneficial payment terms.
You don’t research your market
Regardless of its size and sector, no business can approach the market without doing some preliminary research work. Your research will establish the baseline for future activities and strategies, such as identifying opportunities and risks now and in the next period. For example, suppose you gain knowledge about innovative tech that could be repurposed for your sector. In that case, chances are that other competitors will be ready to invest once the tech becomes available. Even if it isn’t going to happen for a few months, making a note of future opportunities means you can keep your cash flow under control as you know about expenses to come.
No start-up has an easy time managing their cash flow. Yet you can figure out how to make the most of your finances with strategic preparation work. From understanding how to prepare your taxes to knowing how to get the most value out of your suppliers, you can bring safety and forecast to your cash flow strategy.