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Cash Flow 101: How to Manage Your Startup’s Cash Flow

Sometimes the thought of looking at your startup’s cash flow can be frightening. It’s easy to think that if we ignore it, it won’t become a problem – often until it’s too big of a problem that we can no longer ignore! Many times, it’s not nearly as scary as you think it is going to be, and it’s extremely important that we stay up to date with your business’s cash flow.

Keeping an eye on your cash flow ensures that you are staying on track with your monthly expenses, including those unplanned ones that seem to always pop up. It will also help you determine when you can start to grow your business, or if you need to adjust your strategy based on seasonal or fluctuating business.

What Makes Up Cash Flow?

There are different streams, or categories, that fall under cash flow; some of which are outgoing and others of which are incoming or are assets.

  • Revenue – This is the money that you make for the goods or services that you sell. This is your bread and butter and why you do what you do.
  • Costs – This will be your longest list and will include things such as staff, business expenses, building costs (rent, utilities, etc.) costs of materials for goods sold, etc.
  • Assets – These are items that are neither incoming nor outgoing but that have value to your company, such as equipment, inventory, etc. Things that you will, or could, get money for in the future.

Bust out an Excel document and mark down all of the cash flow items that apply to your business. Do you make candles for a living? You need to think about the wax and wicks you use, any finished candles you keep in studio to sell are assets. Do you have a photography studio downtown? Don’t forget to write down rent and each of your utilities as costs, plus all of your camera gear as assets. No matter which industry you’re in, when you sell something, that’s revenue.

Once you have a list of all of your cash flow items, it will be easier to track in your cash flow system.

How to Track Your Cash Flow

There are several different ways in which you can track your cash flow. These days it is recommended to use a cloud-based accounting software, such as Xero, so that you can access your financial information from anywhere, and you won’t have to worry about losing any of your data. You will also be able to automatically track revenue and expenses and generate reports.

Keeping digital receipts is another way to ensure that you’re accurately tracking your expenses, giving you a more accurate picture of your business’s current financial standing.

Once a month meet up with your accountant or Virtual CFO to ensure that you are on the right track and that everything is balancing the way it should be. This way, if something isn’t measuring up, you can catch it early, knowing you don’t have to go back further than 31 days.

Having a Virtual CFO is a great alternative to having a full-time company CFO. This way you get all the knowledge and expertise, with the savings of not having to pay for a full-time salary.

Common Cash Flow Issues

There are going to be times when you go to balance the cash flow and things just aren’t aligning. Some common cash flow issues are:

  • Expenses are too high
  • Income is too low
  • Not making the most of your assets
  • May have forgotten to enter something in
  • May not have categorized something correctly

Once you get used to updating your cash flow regularly, you will probably see the number of occurrences for these issues diminish. That’s not to say that there won’t be mistakes or errors, but don’t panic. It could simply just be something was entered in incorrectly, and if not, talk to your Virtual CFO or accountant. The great thing about having everything online is that it is all traceable, up-to-date, and easy to identify opportunities for your business.

We hope that managing your start up’s cash flow doesn’t seem so scary or overwhelming now. Knowing how important it is, and how much it can save you in the end, monitoring you cash flow is a simple way to invest in the health of your business. Remember, you’re never alone, there are plenty of online resources, plus you can always ask your accountant or Virtual CFO for assistance and advice!

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