A startup’s biggest challenge is to ensure that there is always positive cash flow throughout the year. If times are tough and profits drop, it is easy to feel the pinch in your working capital. You need to find a way to increase these monetary reserves. When profits are high and you’re making bank, you can feel the benefit of having additional cash in your cash flow reserves. You need to balance out the cyclical trend by maintaining a positive cash flow throughout the year. These are some of the ways that you can maintain positive working capital throughout your sales cycle.
Avoid Overspending
Stop spending money that is not necessary. This is one of the best ways to control your cash flow. Although it can be tempting to purchase the latest and greatest for your business, if sales dip tomorrow, your reserves will be a lot smaller than usual. You need to be careful about what your startup needs to survive each day. This will help you get the money you need to solve any problem without having to work hard to raise the funds.
Keep on top of your invoicing
Startups often find it difficult to get paid for their work. While it can be frustrating to chase down late payments, it is also your responsibility as a startup owner to ensure that your invoice is paid on time. Invoicing can ensure you have a steady income and allow you to make sure that money is available for positive cash flow at each month’s end.
Keep track of your daily-to-day costs
You can identify areas where you are spending too much by keeping a detailed record of all your expenses throughout the year. While you may need to reduce your expenses, tracking your cash flow each day will help you see where it is going. You can keep track of every expense you make each day, and then review it to find areas where you can trim. It is possible that you are making unnecessary purchases that are increasing your working capital.
Keep a Cushion
You can prepare for the times when your startup may struggle with its working capital by making sure you have a reserve of funds you can depend on. This will make the slower months more bearable and give you an extra cushion to draw on in case of an emergency. This can provide additional security and help you keep your profits up throughout the year.
Estimate Future Earning Conservatively
It is easy to underestimate what your earnings will be in the next year if you look ahead. Unexpected circumstances or sales may cause you to overestimate your earnings. You can keep your cash flow positive by being realistic about your future earnings. Also, plan for the unexpected so that you don’t end up with no working capital.
Increase sales
It is obvious that increasing sales can increase your cash flow. However, this is an area where business startups often lag. Consider the ways you can increase your customers’ purchasing power and add value to what you offer. Bundles or add-ons can be a simple way to increase sales and get customers to spend more. It is important to think about all possible ways to maximize each transaction’s value so that you have the extra working capital you need after you have paid your receivables and payroll.
Secure a Short-Term Investor
Angel investors can be a great way to get funding for your startup. You can rely on them for financial support and funding in times of need. An angel investor is a short-term investment that can help you grow your business and still allow you to maintain your day-to-day operations. These seed investors are more flexible and offer an alternative way to secure funding for your startup.
Develop loyal customers
Your customers can become loyal fans who return to your business on a consistent basis. This will help you increase sales and profits throughout the year. Recurring customers are a great way to give your business the boost it needs and increase your working capital with every purchase. It is possible to count on your customer returning to your business to make another sale. This will also help you project future sales and prevent your cash flow from going into the red.
Keep your inventory lean
A startup can avoid negative cash flow by making sure you don’t have too much inventory. Keep your inventory low and only purchase what you absolutely need. This will make a big difference in your bottom line and help you improve your cash flow. Although having products and materials in stock is nice, it can impact your ability to access cash when you most need it. It takes special skills to keep inventory low, but once you do, your operations will be just as efficient. You won’t have to wait months for your backlog to sell, which can impact your monthly working capital.