Startups suffer from cash flow problems when the money flowing out of the business is more than what you are receiving. In fact, cash flow issues have been one of the chronic problems plaguing the small business sector. When you have erratic cash flow patterns, meeting your financial obligations can be quite difficult and if this persists, you might find yourself out of business.
Whether this situation results from the nature of your business industry, you have to know how to tackle the challenges if you want to stay in business for long. Here, you will learn about some actions you can take to cushion your startup from the nightmares of irregular cash flow.
1) Estimate all your variable expenses
Among your recurrent expenses, there are those that you are certain to encounter but you can’t quote the exact figure since they keep on changing. Mostly, these expenses will depend on how much you use the utilities being charged. Here, you are looking at things like water bills, electricity, and air conditioning. The best way to approach these expenses is by using your previous bills to determine a working estimate.
Nevertheless, these expenses tend to rise as your startup grows. But if you are diligent in your record keeping, you can also use things like seasons and the number of people using the utilities to determine a workable figure. As a rule of thumb, your estimate should be on the higher end just to be safe.
2) Consider your luxury expenses
From time to time, some business owners find themselves culprits of luxury spending. Basically, it doesn’t come from being a spendthrift but rather, it emanates from your desire to have the best tools and equipment in your business. While some purchases can give you great returns in the long run, not all of them are worth it.
Before making any additional purchases, you should carefully analyze the returns your business will gain from the expense. While it can be really great if your startup had state of the art equipment, the high expenses can jeopardize your long-term strategy. Instead of insisting on expensive equipment, you can stick to functional options until your business makes enough money to afford the top-tier equipment.
3) Always expect the unexpected and prepare accordingly
If you are already operating a startup, you probably know that it can be quite daunting to plan for every eventuality in your line of work. There are lots of things that can happen that you hadn’t thought about and you have to deal with them quickly. Whether it’s the drainage system that broke down or the company car is on its last leg, you have to address the situation quickly.
Some of these things can influence your profit margins in a negative way. Of course, it’s great to have a sufficient emergency fund but if several emergencies strike at once, it can be tricky to contain the situation and still be left with some funds in the account.
As such, you need to have an alternative plan just in case the worst happens. Depending on the magnitude of the issues you need to deal with, you can have some personal savings stashed somewhere. Alternatively, you can use a $5000 guaranteed personal loan to solve the issues facing your business.
4) Consider opening a line of credit
When running a small business, you soon realize the importance of business credit. In fact, most business owners confess that business loans are critical to running a successful business.
When you have erratic cash flow cycles, you can use a line of credit from an online lender or a bank to iron out your difficulties. Most lenders will give you a sufficient credit limit but it also depends on your requirements as well as qualifications. The good thing about these loans is that you will have the luxury of using the money whenever a need arises. This means you won’t need to apply afresh every time you require the credit.
When repaying the borrowed money, you will only pay back the amount you’ve utilized during the billing cycle. Nevertheless, you will have to pay the interest as well as the annual fees to keep your account active. If you are not sure your business can afford to make the payments, its best to utilize just a small portion of the credit allocation to avoid ugly debt cycles.
5) Stay on top of your billing cycles
When you make it a habit to send out all your invoices on time and following up on any bill that is outstanding, your cash flow can improve. At the same time, make sure all your payment terms are spelled out clearly before you start working with new suppliers.
Do your best to understand your customers and keep track of their payment dates. If you have a customer who is always late in making payments, you should investigate the matter since it could be a sign that they are almost going under.
6) Get your targets right
When you run your business without tangible targets, you risk getting into erratic cash flow cycles. When you know the exact amount you require to keep the business going, it’s easy to tailor your operations around the targets.
To stay afloat, you definitely need enough money to pay for the essential business operations. If you expect to make major investments that can guarantee lucrative profits, make preparations early and figure out how you’ll get the money.
When you stay vigilant in your business, you can definitely minimize the effects of irregular cash flows. While it can be difficult to eliminate every problem in a business, you can at least be ready for most of the issues that are influenced by cash flow difficulties. With the tips discussed here, you can take back the controls and take your business to new heights.