When starting out in running a business, there are a number of things you need to take into account. Are you ready for the challenge? Is your product or service offering real differentiation in a crowded market place? Can you explain what your business does in 30 seconds to a room full of time-poor investors?
Let’s assume “yes” is the answer to these questions. Job done, right? Not quite. One of the most overlooked aspects of owning a business is around cashflow.
The presumably simple practice of knowing how much money is coming in and going out of your business can be the difference between staying afloat and shutting your doors before you’ve even got started. Yes – it’s that important.
So how can you make sure you don’t fall victim to the great cashflow conundrum?
Our Corporate Partner Intuit QuickBooks have come up with a few examples of how a lack of understanding of cashflow can lead to dangerous consequences for your business.
1. Some customers take longer to pay you than others
There are countless examples of startups who are completely on budget but are also completely out of cash. Why? Because the income that you thought was coming this week is actually coming in a fortnight’s time. Make sure you pay close attention to when customers owe you payment. This might be the case even with those clients who pay you the most. QuickBooks carried out research showing that almost 65% of small businesses were waiting up to 36 days to get paid, with many of them saying they couldn’t survive if they were to go 50 days without payment. So agreeing when you get paid is going to be critical when managing your cash flow.
2. Planning for the worst
We don’t like to talk about when things go wrong, but it’s very unlikely that your startup will run like clockwork 100% of the time. Whether it’s a fire in the factory that creates your product, supply chain issues or a laptop that dies on you, you’ll need to think on your feet. Make sure there is some money ring-fenced for any unpredictable mishaps.
3. You’re in profit but you have no money
You might have done pretty well in terms of turning a profit, but be warned – this shouldn’t be mistaken for cash. Essentially, your priority will be to reinvest any profits you make back into your start up to allow it to grow even more in the future.