It’s the beginning of a new year, and time to start working on those new year’s resolutions (if you stumbled upon this post later in the year, even more reasons to get to work NOW! :)). This post won’t help you lose weight but take care one other important resolution: having your precious startup finances in check. Here I will give you 7 tips on how to master one building blocks of startup finances: cash flow management.
In my previous post, I talked about the reasons 4 out of 10 startups fail (spoiler: it’s also related to cash-flow management). In this post, I will give 7 tips to master your cash flow and NOT be one of the 4. Some of the tips sound very simple & obvious, which they are, but they are still forgotten way too often.
- Make it a habit to stop for a couple of minutes once every two weeks, and check the money coming in and going out – cash flow. Preferably do it with an outsider to get an unbiased view. And remember to do it properly! You don’t want to go bankrupt because of a silly calculation error. Tweet about it!
- Understand when the incoming money will really be in your account. If you sign a deal today, it doesn’t mean the money will be in your account tomorrow. It could come next month, next year or even later if that is what you agreed! So, understand when you will get the money, and make sure you won’t be out of cash before that. Tweet about it!
- Remember that not everyone pays their bills in time. There also might be other problems delaying the payment like dealing with reclamations. So, don’t count on that one payment too much! Tweet about it!
- It usually takes 2-3 years before your company is cash-flow positive. Most first-time entrepreneurs believe they can do it less than 6 months. And that obviously means trouble. So, a bit of pessimism will be a good aid in your journey. It is better to be pleasantly surprised than the opposite, especially if it means you will be out of money and business. Tweet about it!
- Pivot fast. Startups usually pivot, i.e. change from plan A to plan B or even D 3-5 times at the beginning. And every time you pivot, your revenues will be further and further in the future. So, the faster you pivot the faster you will get money coming in. Tweet about it!
- Multiply your estimated need for funding & time frames by 3 (or π/pi if you want to get precise), and you will get much closer to reality. Why three? You just read the reason for it: pivoting. That makes even the best estimates unrealistic. Based on our experience, multiplying the estimates by three gets startups closest to the reality more often than not. So, if you estimate that your product will be ready in 3 months, it usually takes 9 months in reality and so on. Tweet about it!
- Understand what you are selling, to whom and for what price. Before you yourself understand what you are doing, it will be hard to convince others to buy. It doesn’t mean your product/business has to be perfect, but no one is going to buy it if it is only almost ready. Tweet about it!
And that’s it! All in all, it usually takes longer and costs more to get your startups going than you’d think. It all might sound pessimistic, but think of it this way: the better you are prepared, the more likely you are going to be one of the success stories!