UNDERSTANDING CASH FLOW MANAGEMENT AND HOW IT CAN HELP YOUR STARTUP

Cash flow management is the financial lifeline of any business. It is a fundamental practice that can help guide you when things are unclear. By mastering it, it provides you with peace of mind. Below we take a deeper look into what cash flow management is and how you can implement it in your business today.

WHAT IS CASH FLOW MANAGEMENT?

Cash flow management is the process of monitoring, analysing, and optimizing the inflow and outflow of cash within a business. Proper management ensures that a company has sufficient funds available to meet its obligations.

Effectively caring for these resources will both meet the needs of the company as well as review the risks that may be at play.? It is likely as a start-up that a full team is not available at your disposal for this task. This is where cash flow management services come into play. These services are often offered through banks or other financial institutions.?

As a start-up company it is important to take advantage of the large capital you hold and put it to work generating a positive yield return.

DEVELOPING A SUCCESSFUL CASH FLOW STRATEGY

There are two terms that need to be understood to have a successful cash flow strategy: strategic cash and operating cash. Let’s take a deeper look into the differences between these two.

STRATEGIC CASH FLOW

Strategic cash is money that the company will not need for a specific period of time.? Knowing this information can allow you to invest, acquire new assets, work on new product development or other long term projects.? Understanding your strategic cash balance is key for continuing to move your business forward.? Investing money you do not have can lead to premature fall out for your start-up, something no entrepreneur wants to see!

OPERATING CASH

Operating cash is the total amount of money it will take to keep your business operating for the next 6 to 8 months. This total should include salaries, bills, marketing costs and anything else that keeps your business running. This is a specific amount that should always be on hand.? Making this a consistent habit will provide your business with a better chance of succeeding.?

Having a sense of what each of these amounts should be and what your actual amounts are is good practice. As this strategy becomes more developed it will become more clear where you should be leaving your money.

Finfanfd.com provide access to 'Fractional' CFO/FDs, that have years of experience of helping start-up companies grow, profitably and efficiently. For more information on the how our CFO/FDs can help your business email me at [email protected]