For start-up businesses, it can be difficult enough to look for customers without having to worry about your existing cashflow. But if you have to deal with cashflow problems at the same time, you can have a challenging time ahead. So one of your first priorities is to make sure that you have available cash at all times and your cashflow will not dry out.
What you should understand as a new business owner
First, there are some things you should understand from the beginning. You will have cash inflows (payment from customers and assets as well as income, in other words), and cash outflows (expenses and payments you make to your suppliers, etc.). But at the beginning, be prepared to have more cash outflows than inflows. Your cash outflows will usually outweigh your cash inflows at the beginning, because you have to contend with expenses such as the purchase of materials, tools, or stocks; wages and rental as well as operational expenses for each day; the purchase of assets which are fixed, such as computers, furniture, and machinery; repayments for loans and dividends, and taxes as well as contributions to National Insurance. So, as a business, you have to be prepared from the start so you do not get unduly surprised.
A guide on improving your existing cashflow
The good news is that there are ways in which you can still improve your existing cashflow even if your outflow is greater than your expected inflow. First of all, one thing you can do is request your current customers to settle their payments sooner. If necessary, give them a reward for this, such as a discount or freebies. Another thing you can do in order to improve your existing cashflow is to not be afraid of chasing debts. Make it a point to check your invoices regularly so you can see which customers have not paid yet. If a customer has not settled their account, then don’t be afraid to contact them and ‘chase’ them if necessary. Be firm with your demand but be friendly and polite as well.
Yet one more thing you can do to improve your existing cashflow is to request for an extension on your credit with your suppliers. Granted, this sounds more like a worst case scenario, but you can resort to this if you feel that you will be having problems with your cashflow in the near future.
One other activity that can improve – and increase – your cashflow is factoring and invoice discounting, especially from reputable firms such as Ultimatefinance.co.uk. This type of solution is ideal for many start-up businesses because you are simply using your unpaid invoices – rather than waiting for clients to settle, you can already use the money they owe by relying on invoice financing.