“Never take your eyes off the cash flow because it's the lifeblood of business.” – Richard Branson
It’s no secret that ineffective or poor cash flow is the number one reason behind failed startups. This is typical because startups simply have less trading experience than other companies, driving them to make ineffective financial decisions.
But it can also be due to factors like the loss of key customers, a seasonal dip in sales, or late payments. All of which can contribute to cash flow issues for a young business.
Fortunately, there are ways to get around this. Contemporary operations and tools have enabled startups from around the world to make more informed financial decisions and develop a cash flow system that is more cyclical and sustainable. Let’s go through them.
7 Ways For Startups To Improve Cash Flow
Considering how common it is for startups to struggle in the cash flow department, developing a clear strategy for coping with this business Achilles’ heel is imperative to avoid trouble.
Instead of making the situation worse by taking out large loans or compromising the quality of your goods and services to survive, your startup will be much better off with a closer look at technology-related optimization and automation options.
There are lots of opportunities to cut costs, boost productivity, speed up the client payment process, and generally improve cash flow with the right software and tech on your side.
We’re lucky enough to live in an age where these kinds of productivity and profit-enhancing technologies are not only available to us but also more accessible than ever before. Let’s take a look at some of the best ones for startups seeking stronger and more consistent cash flow.
1. Utilize Cloud-Based Accounting Software
Cloud-based data drives are popular for a reason. Safe, secure, and incredibly easy to use, you can use this software to access and manage all of your financial material from one reliable center point.
Cloud-based accounting software can support startups as they manage their finances through automating invoicing, payment processing, and expense tracking. This can save time and reduce errors while improving cash flow.
Some of the features you might find on cloud-based accounting software include secure multi-user access, the ability to create and store financial reports, protect financial data from getting leaked, and even automate invoices for faster payment turnarounds.
2. Implement Blockchain Technology
Blockchain technology is most often associated with Bitcoin and other forms of cryptocurrency. But its uses far extend these commodities.
What makes blockchain unique is its ability to record transactions and track assets across an immutable network.
This allows companies to create smart contracts that automatically execute when certain conditions are met, such as when a payment is received. This process can eliminate the need for intermediaries and improve both the speed and security of financial transactions, resulting in much faster, more sustainable cash flow.
3. Leverage AI For Financial Forecasting
Financial forecasting is the process of predicting a company’s financial future based on previous records. And it can play an instrumental role in avoiding cash flow issues. By identifying problems before they arise, startups can prevent them from occurring.
Artificial intelligence (AI) is already being used to analyze historical financial data and forecast future trends. Now, companies of all levels are using these forecasts to anticipate cash shortfalls and take action to improve cash positions before serious problems arise.
4. Adopt A Variety Of Contemporary Payment Processing Platforms
One of the most common reasons behind poor cash flow in startups is an ineffective or hard-to-use customer payment system. Part of knowing how to make an invoice is ensuring that you include a number of popular payment options for customers to choose from.
By providing a wider variety of payment processing platforms (such as Stripe, Square, or PayPal), startups can streamline payment processing, making it faster and easier for customers to pay. This automatically boosts cash flow by reducing payment delays and ensuring that funds are received punctually.
5. Implement Virtual Payment Cards
On the topic of payments, the vast majority of consumers prefer virtual payment options, and for good reason. They’re safer, more convenient, and more accessible than alternatives. Your startup can use virtual payment cards to aid cash flow in a number of different ways, including a reduced risk of fraud, a wider customer audience, and streamlined payment processes.
Virtual payment cards can also stimulate better cash flow by providing faster access to funds and reducing the need for traditional cards.
6. Harness The Power Of Inventory Management Software
Inventory management is a key component of a healthy business. Without a solid understanding of stock, ordering processes, and demand patterns, maintaining a grip on cash flow can become a real labyrinth.
However, with inventory management software, any potential for confusion becomes almost nonexistent. It can help startups optimize their inventory levels, reducing the amount of cash tied up in stock, all the while improving the accuracy of inventory forecasting, thereby reducing the risk of overstocking or stockouts in the future.
7. Utilize Crowdfunding Platforms
Sometimes, the reason behind a startup’s cash flow issue is as simple as a too-small initial capital. When you start off with decent funding, both present and future cash control problems will become reduced.
Crowdfunding platforms like Indiegogo or Kickstarter can support startups in the process of raising funds in a short amount of time, thus helping them improve cash flow by providing immediate funding for marketing, product development, or otherwise.
Using a crowdfunding platform is a great way to gain access to big funds fast by leveraging the incomparable power of social networks.
No startup wants to join the ranks of those who tank due to fixable cash flow problems. While the first few years of starting any business are bound to come with challenges, cash flow doesn’t have to be one of them. Or at least, it doesn’t have to be your cause of demise.
By implementing innovative technology such as blockchain, AI, inventory management software, and more, you can grow your business and carry it through the beginning phase of business into a more stable and profitable future.
OpenGrowth is constantly looking for innovative and trending start-ups in the ecosystem. If you want more information about any module of OpenGrowth Hub, let us know in the comment section below.