For Aussie start-ups, managing cash flow effectively can be the difference between sinking' or swimming'.
"You have to be aware of and prepare for the cashflow killers."
Starting a business has unique challenges and you need to be real about your approach to cash flow.
As a teenager, I had lots of ideas on how to become a millionaire and get rich.
A wise uncle once said to me:
"When you have an idea to start a business, you should plan:
1. to make less than HALF the revenue you anticipate and
2. pay TWICE as much for everything you expect to buy"
It seems extreme.......but there is an large element of truth in it.
Very often in the beginning, our expectations of the outcomes are much greater than the reality. Its not our fault really to have a an inflated idea of how its all going to go, because without that grand vision you probably would not have got going in the first place!
My uncle would go on to say :
"If the business idea still looks good at half the revenue and twice the cost, I might look into it further"
So what is this BIG issue that business owners face when they start?
Overhead Costs
"Keeping a lid on overhead costs is crucial for start-ups. Consider alternative work arrangements like remote work or shared spaces, and talk with suppliers to get better deals and improve cash flow."
- Mark W, Financial Consultant-
A start up can protect itself from cash flow issues by carefully managing its overheads . Here are five strategic points on how to do this effectively:
Regular Expense Review:
Start-ups should regularly review and categorize their expenses to identify areas where costs can be reduced.
When you start your business, do this daily.
There are going to be a few unnecessary or non-essential expenditures that you make but you want to find them and eliminate them quickly.
Too many business have gotten to a quick end, only to look back and realise how much they could have cut before it was too late
2. Start up money must be paid back quickly:
When you start a business its all loan money!
Whether you borrowed it from yourself or the bank, it has got to get paid back with interest.
So - be lean and operate with minimum waste.
You have to hate wasting resources and build a culture quickly with your team.
Start-ups should focus on essential functions that directly add value to the customer, avoiding overspending on lavish office spaces, excessive staff perks, or premature scaling.
3. Negotiate with Suppliers and Vendors:
Establishing strong relationships with suppliers and negotiating better terms can reduce costs. They know you are new at this so play that to your advantage and seek discounts for bulk purchases, longer payment terms, or more favourable pricing.
They want you to sell more and this is the way they can ensure you do that for the long term
4. Utilize Technology and Automation:
Leveraging technology and streamline operations to reduce costs. Automation of routine tasks and use AI tools. Its only getting better so you should embrace it.
5. Flexible Budgeting:
Build a flexi-budget to adapt quickly to financial challenges or unexpected opportunities.
Allocate a portion of the budget to an emergency fund
Have a contingency plan written out.
Additionally, forecasting and scenario planning can help anticipate future cash flow statuses under various conditions.
What about costs that are not overheads but you still have to plan for?
loan repayments
and tax
and your wages
etc.....
Its a cash flow issue and it must be in the plan so ask for help if you need.
Here are some other cash flow issues that you need to consider:
Late Payments
Poor Financial Management
Seasonal Cash Flow
Limited Access to Funding
Profit Cloud exists to help businesses like yours.
Get in touch to find out how our strategy planning and advice can help you save money and win better.
What is the main challenge faced by start-ups?
The main challenge faced by Aussie start-ups is managing overhead costs. High overheads can drain resources before sales have a chance to generate sufficient revenue.
How can start-ups effectively manage their cash flow?
Where can start-ups get additional help with cash flow management?
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