Effective cash management strategies for startups
Starting and growing a business in today’s competitive landscape is not something that can be done absent-mindedly anymore. Startups must find creative ways to break through the market and this only comes with a mix of dedication and the right strategy. The bottom-up process is a task that must be approached with insight.
This article is the first in a series that will shed some light on simple but effective strategies that startups can adopt to power their sails. Let us dive right in.
Mind on cash flow: Cash is everything for any startup. Cash position for a tech startup must be properly strategized such that positive cash flow from operation is achieved in no time.
Some of the ways cash flow success can be achieved are:
Proper revenue and cost management strategy must be put in place from day one. Revenue alone cannot achieve profit. It is when revenue is properly matched with the right cost that a profitable net margin results. Every startup must constantly seek ways to increase sales and reduce cost.
Also, you can outsource some business operations that might be impacting negatively on running costs.
Budgeting: Tech startups that want to survive cannot operate without a well thought out budget.
Prudence and financial probity should be a holy grail that every tech startup adopts. To overestimate cost while underestimating revenue is textbook accounting wisdom. It is optimism backed up by realistic expectations which will save you from being reckless with plenty and suffering in scarcity.
All startups have dry spells when cost runs through the roof with revenue just strolling in through the window! Times like these must be met with a good budgeting strategy.
Improve on quality: The best and cheapest kind of discount is to add quality and not necessarily to reduce the price. Add so much value to your products and offerings that your customers practically lose money and prestige buying from the competition.
Based on the diamond-water paradox, a rational consumer would pay a higher price for a scarce commodity. So, if you make your offerings the best in the industry, you create a discount that no rational consumer would want to miss.
Handle debt with caution: Debt is a two-edged sword and as such, must be incurred cautiously.
Good debt is one that has little and reasonable conditions attached to it such that it allows your business to breathe and run profitably. Anything to the contrary is bad for business growth.
When securing debt to spur business success, make sure you understand the covenants and position your interest properly while negotiating.
Also, it is advisable to shop around when looking for credit. This helps to considerably reduce your chances of overpaying on debts.
Organise your financials: One of the major mistakes that tech startups make in their beginning years is trying to run a business without having organized financial reports.
This is a no-no for any business that wants to go far. Also, good financial reports help show investors and lenders that you are serious while also helping you separate personal finances from that of the business.
Starting a business is always an interesting journey as it affords one the rare opportunity of trying out one’s ideas.
However, in doing this, simple cash management issues must be strategized properly for any startup to achieve its goals and grow into a big global brand.