As the founder of a startup business, you have dozens of important decisions to make. One critical decision is how you will raise the funds you need to launch your company. In addition, you’ll need to carefully manage your cash needs to stay in business. These decisions can make or break your company. Use these tips to raise cash and manage cash flow.
Write a formal business plan
You should take the time to write a detailed business plan. This step is the best way to ensure that you think through all of the important issues that will impact your business.
The business plan should include at least three years of financial projections, including cash flow. You’ll explain how you will raise money by issuing stock or debt. The financial plan will project your cash inflows and outflows each year.
Creating financial projections may be the most difficult part of your business plan. Fortunately, you can purchase business plan software. The software will provide a template for each component of your business plan, including financial statements.
The financial statements are linked. When you input revenue into the income statement, for example, the software can also post the cash flow for that revenue. You’ll end up with a set of financial statements that link the balance sheet, income statement and cash flow statement together.
Factoring as a cash flow solution
When you write your business plan, you may find that your receivables sometimes do not generate enough cash to operate your business each month.
Say, for example, that you operate a business that has large sales during the holiday season. You have to buy inventory in October and early November to meet demand. Your cash collections from holiday sales come in January. You need more cash in October to make the inventory purchases.
A factoring company like Universal Funding explains how receivables can be used to finance your cash needs. Factoring allows you to pledge your receivables as collateral for a loan. The factoring company pays you cash up front then collects your receivables as they come in. You pay a fee for this service, which allows you to convert your receivables into cash.
Using accounting software
Once you start operating your business, you’ll need accounting software to stay on top of your cash position. Quickbooks is an inexpensive accounting system that is also cloud based. You can learn how to use Quickbooks quickly, and you can back up your data on the cloud. The system provides a variety of standard financial reports you can use to monitor your cash position, receivable and payables.
Many companies generate a profit, but cannot collect cash fast enough to operate. You need a written procedure to invoice clients and collect cash. Chron.com explains that successful businesses have standard operating procedures (SOPs) for all of their routine practices.
You should have a formal procedure for receivables. This should include steps you take to follow up on late payments from clients. That may mean an email after 30 days, and a phone call to the customer after 60 days, for example. This formal process will keep your cash collections on track.
Use all of these tools to plan your business startup. Consider using a factoring company to address any short-term cash flow issues. If you plan your business and manage cash well, your company can operate profitability and grow over time.