26 - Cash flow problems: How to beat the top killer of startups - Make Money Online

Header AD

26 - Cash flow problems: How to beat the top killer of startups

It would be fair to say that startups are the focus of umpteen quotes and myths and unfortunately, many of them are true. A lot of new businesses do falter in their first twelve months, and one of the big reasons behind this is cash flow.

In short, new businesses really do struggle to deal with this crucial ingredient. Most of the time this is due to their lack of history and the fact that they just haven't been able to build up sufficient cash reserves over the short period of time the business has been active.


The most frustrating thing about cash flow is that in some ways, it shouldn't mean that your business is a failure. A lot of businesses who are forced to close due to cash flow problems are actually set to turn a profit. Unfortunately, said profit is about to arrive a little too late.

Bearing this in mind, today's article is going to address the issue and show how you can beat the top killer of startups.

Creative credit terms
 
This is one of the newer techniques on the block, but one that can make no-end of difference to your business if cash flow is a serious problem.

Invoice factoring services can be defined as a financial company lending your business cash, that is effectively secured against invoices that are owed to you. Of course, there are fees to pay for this, but it at least allows your business to function without any concerns about cash flow.

Another alternative are early settlement discounts (or a PPD, in government lingo). This occurs when a company will reduce an invoice's value, in return for it being settled in a quicker timeframe. Typically, these discounts are around the 2-3% mark.

Don't grow too quickly
 
This next point almost sounds ridiculous, but countless new businesses out there are guilty of growing far too quickly. They will take on a huge contract, only to realize that they then need extra members of staff to carry out the project. Unfortunately, these employees need paying before the project is paid to you - and this creates a gaping cash flow problem.

There are of course ways around this, without turning down lucrative work. If you plan in advance, you might be able to arrange for a line of credit. However, on a lot of occasions young businesses don't have the foresight to think about this.

Invest in a credit control system
 
In the early days, it can be difficult to justify added costs for your business. One that we really think you should turn to comes in the form of a credit control system though.

This is something that keeps tabs on the bad debts in your company and ensures that they are paid as a matter of urgency.

Usually, companies just don't keep on top of this, and clients tend to take advantage and delay payment as a result. If you keep on the ball from the start, you’ll ensure invoices are settled faster and cash flow problems are much less likely to occur.
26 - Cash flow problems: How to beat the top killer of startups 26 - Cash flow problems: How to beat the top killer of startups Reviewed by Dhanur Chauhan on 2:25 AM Rating: 5