In many ways, cash flow is everything for a startup. You might have the best idea or products and the most fantastic forecasts but if you don’t have the cash flow then you can’t bring any of it to life. More than 80% of businesses that fold do so because of a lack of cash flow – it’s the single biggest factor in the success or failure of your business so managing it is a skill worth learning.
Why does cash flow matter?
It enables you to identify issues. A simple cash flow analysis of what has come in, what has gone out and what is left in the bank will keep your business on the straight and narrow. It will show you where the strongest income is, as well as identifying issues that need to be dealt with quickly, such as a negative bank balance. It will also enable you to stay on top of things like unpaid invoices and chasing up money you’re owed before they get critical.
If you have cash flow then you can reinvest. If you’re a product-based business, for example, without the cash for development, prototypes etc you’re going to struggle to start generating additional revenue. You might be able to service your debts and just about cover your expenses but if there is no cash in the business then you can’t expand or grow.
Cash flow will show you where your business needs support. If you’re on top of your cash flow figures then you will have an accurate picture of the business and its needs. This will give you the time and opportunity to look for support such as investment or financing that could help you to create more cash to grow.
You can use cash flow to make savings. The figures you’ll generate from monitoring cash flow are essential when it comes to cutting business costs. You’ll be able to identify costs that are too burdensome and look for ways to reduce outgoings so that there is more cash to spare.
Without cash flow your business will die. If you can’t pay for stock, marketing or customer services then you’ll struggle to generate new custom. If you get to the point where you don’t have enough cash in the company to pay your creditors then one of those creditors may seek to have your business wound up.