If you had to guess, what would you say the most prominent reason for start-up failure in the UK is?
Well, number one is obviously a lack of need for the product or service in question, but if you look beyond a simple lack of consumer desire, you’ll find many start ups fall foul not because of their product, but because of cash flow problems.
Poor understanding and management of your cash flow can put your business into a tailspin rather quickly, so what can you do to ensure money is always there when you need it?
Use software to track finances
We live in a digital age with automated systems increasingly becoming the norm in business – particularly following the COVID-19 pandemic. These days, accounting and invoicing software is hardly ground-breaking stuff, but for small start ups with limited funds, many business owners still prefer a hastily put together spreadsheet to keep track of the numbers.
You’ll find yourself in hot water quickly without proper tracking of your accounts, however, and implementing accounting software is one of the simplest ways to automate core business processes, organise incoming and outgoing payments and, most importantly, stay cognisant of your cash flow.
Invest in the business
Enhance the skill base, productivity and promotion of your business, and your cash flow will follow suit.
Many small business owners are often investment adverse in the infancy of their business, but putting money into the right areas of your business will speed up processes, optimise workflow and improve marketing – all of which mean better ROI and more money moving through the business.
Encourage prompt payment
Late payments can be a death knell for start ups and are an all-too-common symptom of more established businesses taking advantage of smaller, newer supplies looking to build a relationship. Instead of arguing with the purchase ledger departments of those businesses, look to incentivise early payment to ensure money keeps coming in.
One way to encourage prompt payment is to offer a cash discount in return for timely payers. Alternatively, and perhaps less appealing from a start-up perspective, you can add late fees to late payments. If neither seem to be doing the trick, you can also utilise a process like invoice financing, which unlocks trapped funds in your sales ledger via passing the debt to a financing company.
Check your inventory
If you’re selling a catalogue of products, take a moment to consider your inventory and what is and isn’t selling well. Undesirable goods might be clogging up your stock room shelves as well as your expenditure, and you can release a lot of cash by analysing and identifying the products you don’t need. And if you weren’t selling those products, then your coffers won’t experience any negative effect, either.
Cash flow problems are the bane of promising start-ups, but the strategies above are all fairly easy to implement and highly effective when executed effectively. If you’re in the early phases of a start up journey, remember: cash (flow) is king, so don’t ignore it.