The Cashflow beast; how to tame it

A critical aspect of a business, Cashflow management often is the defining factor which can be either the boon or the bane of a startup. That being said, cash flow doesn't have to be the pit bull from hell, this checklist of things to keep in mind and some focus will help you too, first, get control and then thrive with it.

Ace tips

Accounts receivable (AR) =  Payments from customer = Inflow

Accounts payable (AP) = Payments to vendors (products & services) = Outflow

Understanding the cash situation in terms of what’s coming in and what’s going out is the hallmark of good cash management practice. Vigilance and lookouts must be present to identify payments (AR) delays and unplanned expenses (AR). The following are pointers that should act as a checklist for effective cash flow management:

1. Weekly Cash flow overview: Have a weekly cash flow stand up and check your cash position how the expects inflow and outflow tally with the projections.
2. Balance, AR Vs AP: Pay attention to the accounts, what you’d want to do here is to a) reduce the amount of time that it takes to collect the receivables, and b) Increase the time for accounts payable.
3. Keep customer balances in check: Use software to track customer payment schedules and maintain appropriate follow-ups.
4. Ease the outflow: Rule of the thumb is to keep the cash in your accounts as long as possible, this being said it’s important to not fall back on payments, rather if you can negotiate longer payment terms from your vendors, the better it is.
5. Invoices in advance: Generate/deliver invoices in advance to ensure that the payments are on time as the turn-around time on the invoices must be taken into account.
6. Control Inventory: Avoid over-stocking in the name of maintaining sufficient supplies, lean manufacturing is the most effective technique to ensure proper efficiency.

Trap to avoid

After learning the things that you can do to improve your cash flow situation, here are a few traps you must target to avoid.

1. Surprise budget outages: Keep your AP in check. When quick payouts meet delay in AR collections, you have a surprise cash outage. You may be well within your budget but these surprise outages can be serious disruptions for operations.
2. Bills are first: For startups, the money made is money pumped in. Optimum cash flow management means that though you are putting the money back in your startup, you still have cash at hands to pay for operational expenses. (Marketing expenses are necessary and important, make of note of this)
3. Expenses of the Chutzpah: All expenses must be budgeted and unplanned expenses must be avoided at all costs.
4. No fat, all lean: Payments for AR can fall behind without any heads up, this isn't a possibility but an eventuality. Enough reserves in cash (fat) must be kept to make such eventualities inconsequential.
5. Don’t overextend: Always remember that growth is super intensive on cash and overextending in terms of marketing, hiring, and facilities must be checked and rechecked with the cash flow in mind.
6. Delegate when possible: As a startup founder/operator it is common to sit with excel sheets and do all of the work and tackle the cash flow on their own. Utilizing a potent cash flow management software can help manage and smoothen the entire process.

Evomatiq Business Solutions LLC is a professional, lithe and boutique enterprise software services providing company based in Dubai, UAE. EBS specializes in helping businesses identify and deploy effective and efficient solutions that give them a solid edge.

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