Cash is king

Our new Catalyst Centre tenants were fortunate enough to have accounting guru Peter Dingley, ex-PWC, in to speak about the importance of looking after the pounds and the pennies. His seminar was based on his experience of working in an early-stage business environment and he specifically looked at the topic from the perspective of a start-up.

Peter made a lot of thought provoking points so we decided to round them up in two blogs. An area that he concentrated on, and one which really stood out for us was the importance of managing cashflow effectively. With such a high percentage of businesses failing due to poor cashflow, we decided to take a look at the dos and donts of managing your money when running a start-up business.

For entrepreneurs with no formal accounting training, cashflow can be a difficult concept to get to grips with. Peter was quick to point out that cashflow is the most important thing to keep track of it really is life or death for any business, especially those in the start-up and growth stages who generally need more cash. Here are ten top cashflow tips and basic principles:

  1. You can have all the sales in the world, but if collecting payment and cashflow management is not efficient, the business is likely to fail. Many start-ups simply overlook the difference between revenue and cashflow.
  2. Good cash flow management is knowing the inflow and outflow of cash in your business, delaying the outlay of cash as much as possible, whilst getting everyone who owes you money to pay it as quickly as possible.
  3. You need to be checking your cashflow status daily, especially if you are relying on customers paying you to be able to pay your suppliers.
  4. Be clear with your customers about your terms of business, e.g. 30 days from receipt of invoice, and include a clause to add interest if this deadline is missed.
  5. Be fast to chase payments if theyre not received on time! Even good customers can make late payments so you need to be diligent with them. Check that they received the invoice, and issue reminders close to the due date.
  6. A promise of funding, or even a signed contract, is not the same as money in the bank. A lot of newer companies don’t account for changes in cashflow projections, which can lead to the whole company failing.
  7. Plan for the unplanned. You never know whats around the corner so preparing for unanticipated payment lags and unplanned cash outlays is crucial. Do this from day one.
  8. Look out for seasonal sales fluctuations and work through ways to cope with the ups and downs of your business cycle as it matures.
  9. Watch out for the signs that may impact cashflow such as: higher than anticipated growth, unexpected expenses and emergencies like equipment failure, and new suppliers wanting payment up-front.
  10. Profit doesnt mean cash – it takes real cash to pay the bills. Remember that it is perfectly possible to be on budget and profitable but broke.

Finally, we leave you with a quote from entrepreneur Robert Kiyosaki who said: The most important word in the world of money is cashflow. The second most important word is leverage.Food for thought indeed!

Watch out for our next blog, inspired by Peter Dingleys seminar, which is all about the importance of good record keeping.