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Every business aims to keep its cash flow positive to survive and grow. How does a startup business get through tough times, when cash flow is negative? The answer is in proper cash flow management.
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Here are five ways to manage your cash flow and finance your cash-strapped business.
What to Do If Your Business Has a Cash Flow Deficit
Being cash-strapped simply means having cash inflow that doesn’t meet the obligations of cash outflows. It’s inevitable in the early stages of any company, but the goal is to minimize the time your business is operating with negative cash flow, and conserve cash as effectively as possible until significant revenue starts coming in.
The following tactics can help you finance your tech startup.
Project Business Cash Flow
Make this projection part of your budgeting process to understand your cash flow expectations. In your projection, adjust the budget appropriately for anticipated changes, such as hiring more personnel, new pricing, and unpaid receivables.
Projecting your cash flow also helps you understand your sources of funds and critical areas of expenses.
Reduce Expenses
Projections help you know where you’re spending money. You can use this knowledge to cut unnecessary or excessive business expenses and find funds to save your cash-strapped business. Give priority to your immediate, essential expenses such as wages over overtime, and raw materials over rent.
If it’s feasible, allow and facilitate your staff to work from home (or remotely) to save on expenses like office space leasing, copy machines, printer leases, or recurring orders like office supplies, water, snacks, and mailing supplies. You can also cancel unnecessary services, subscriptions, or services that your startup can do without, such as communication and project management tools.
Seek Short-Term Business Loans
If you’re cash-strapped and want immediate cash with or without collateral, you can seek short-term small business loans or equity funding, such as:
- Merchant cash advance: This is immediate non-collateral you get in exchange for a given percentage (usually fixed) of your daily business revenue until you repay the loan and fees.
- Crowdfunding: Use crowdfunding platforms like GoFundMe to raise funds from your network of followers, clients, friends, and other businesses. This option take time, however, so it’s not a solution to immediate cash needs.
- Equipment financing: Every tech company needs the right machines to facilitate their work. You can take loans against your physical assets to finance your business when cash-strapped.
Open a Line of Credit
A line of credit (or LOC) is a business or personal account that allows you to borrow money up to a preset limit to help you meet your immediate financial obligations. You do this by writing checks or using a bank card to withdraw or make purchases.
You can obtain a LOC from banks, credit unions, or online lenders. If you need to make immediate payments or purchases, online LOCs are the easiest to reach and have a simpler application process.
Use Invoice Factoring
Invoice factoring can help free your outstanding invoices and give you immediate financing. An invoice factoring company will buy some of your yet-to-be-paid invoices and give you the cash at a percentage of the invoice.
The company then collects the invoice on your behalf and sends you the remaining amount, less the fees. Although it’s costly, if your cash flow problems are due to unpaid invoices, invoice factoring may be your best option.
Endnote
Even once you have revenue flowing in, as your business grows, you might sometimes find yourself cash-strapped. It’s vital to keep your expenses low to benefit from the cash during such times.
To help address short-term cash flow needs, you can consider loans, crowdfunding, invoice factoring, or a line of credit to support your business and keep the lights on.