Start up cash management covers two main areas: How to keep cash safe (capital preservation) and effective administration of cash flows for business operation
Preservation of Capital - Keeping your cash safe:
A lot of work goes into raising money for a startup, even more so when your startup is in its early stages. A good cash management strategy for startups means striking a balance between three main factors: liquidity, risk, and yield.
Liquidity: How quickly can you access your money for business expenses? The answer should be very quick. You might set up a checking account for immediate expenses, a savings account to hold funds that can be transferred easily when necessary
Risk: Just as you would when running any other part of your business, it’s important to weigh the risk against the reward when making major investment decisions with your cash. In early stages, the board is often quite risk averse when it comes to excess cash investments.
Yield: You will want to get the best return you can without disregarding the other two criteria. As return increases, however, so does risk. Founders need to primarily focus on capital preservation, making sure your funds are safe until you’re ready to use them for business expenses.
Managing your Cash Effectively:
When it comes to best practices of effective administration of cash management for business operations, we recommend:
Monitor Cash Inflows and Outflows: Regularly track all cash movements, including revenues, as well as expenses like payroll, rent, and utilities.
Control Expenses: Implement an expense policy to avoid unnecessary spending This includes negotiating favorable terms with vendors, cutting non-essential costs.
Maintain a Cash Flow Forecast: Create and update a cash flow forecast to anticipate future cash needs and prevent shortfalls.
Implement Efficient Billing and Collections: Ensure timely invoicing and follow up on outstanding payments to maintain steady cash inflows.
Use Technology for Automation: Utilize accounting software and tools to automate cash management processes.
By staying on top of your cash flow, you can ensure your business remains agile, resilient, and ready to seize new opportunities.
If you need help with your cash management, we’re here for you. Feel free to reach out.
