Guest Blog by Meaghan Orrall, Parallel 42 Consulting

In the challenging economic landscape of today, it’s important for startups to manage their cash flow effectively. This can lead to greater potential for revenue success and overall sustainability. In layman’s terms, managing cash flow means monitoring and optimizing the flow of money into and out of your business. Correct management ensures that there is enough cash available to do things like pay vendors, deal with daily small expenses, and even to invest in growth. In today’s article, we’re going to highlight the importance of proper cash flow management and go through some tips to help you manage your cash flow and your business better.

Set A Budget And Deploy Rules To Control Spending

In order to help you and your business partners manage the flow of usable daily cash, you need to first set some ground rules for how and when you use these funds for expenses. You will need to start by analyzing your typical daily cash flow based on historical sales records and what you are seeing currently as far as sales and revenue streams are providing. Determine a “safe” budget within this amount that you can use and then divide the business needs up within that monthly budget. It helps to start with a broad percentage like 10% of income and cap it there. You can always adjust it down the road as certain market and business realities change.

Develop A Cash Cushion To Safeguard Against Uncertainty

Interruptions of your revenue and cash flow are all but a guarantee, especially in today’s economic climate. A savvy business owner will have already built in a cushion, or rainy day savings account that will accommodate for this. Market fluctuations, changing customer behavior, and unforeseen expenses (storm damage, machine breaking down, etc.) can all contribute to interruptions in cash flow. Set aside a monthly percentage of your revenue to help staunch the financial bleeding during a crisis or you may have to resort to things like liquidating assets or taking on an unfavorable loan, or go out of business entirely. The good news is that it doesn’t need to be a lot. You can even funnel any “left over” cash flow budget each month that was allocated but not spent.

Spend Smarter, Not Harder

Once you have your cash flow budget developed, forecast, and set, it’s time to take a look at the items that you will be spending that hard earned money on. You should be meticulously tracking and keeping records of all of your cash flow needs and if you haven’t already, then you should start as soon as possible. Once you have a holistic, centralized view of your cash flow needs, then it’s time to critically analyze each one and determine its worth. Start by trimming the fat of unnecessary expenses. Here are a few examples of types of “unnecessary” expenses that you could probably trim from your books and have them not impact your company’s success.

• Upgrades for flights into business or 1st class

• Food and drink (especially alcohol!) provided by the company. Maybe spend money on healthful snacks in the break room but limit or pause restaurants or catered dinners etc. 

• Paying more than you need to with suppliers. Try to negotiate for a better price, you may be surprised at what you can get if you just ask!

• Deploying cost-effective alternatives. Think building your own computers from individual parts rather than buying pre-built models. (Individual parts are significantly cheaper and all modern computers can be easily assembled by hand after just a few YouTube videos). Another huge money-saving way to use cost-effective alternatives is to find free or freemium versions of software that the company needs. For instance, you can save upwards of $300 per year per employee by ditching your Microsoft 365 subscription for their “Office” suite of products and just use the Google versions for free. They are mostly identical and offer the same if not better array of features. There is a free version of Adobe Photoshop (which costs thousands of dollars over time) called Gimp that allows you to do just about every image manipulation work you would ever need for 100% free.

• Leveraging technology to accomplish simple tasks. Purchase a robot vacuum to help keep cleaning costs down by reducing the labor needed to clean your office space. 

• Reducing the number of vendors you have or consolidating services into as few a number of vendors as possible.

Before You Go

We hope that these cash flow management principles for your startup were helpful for you. If you’d like to learn more about our fractional CFO services, please visit our page here that contains a full writeup of what we have to offer. We also provide a host of useful services that can help take your business to the next level. Just contact us for a free consultation. From all of us here at Parallel 42, have an excellent year in business.

Meaghan Orrall
Parallel 42 Consulting
morrall@parallel42consulting.com
parallel42consulting.com