Startup Cash Flow Definition
Cash flow is the money that is moving in and out of your business at any given time. Startup cash flow is one of the most important elements in the financial management of a startup.
There are two kinds of cash flow: positive cash flow and negative cash flow.
When you have a positive cash flow, it means the amount of cash coming into your business is more than the amount of money leaving your business. A negative cash flow occurs when the amount of money leaving your business is greater than the incoming cash. Understanding your startup cash flow statement is essential for assessing your business’s liquidity and overall financial performance.
Why is cash flow planning important
It’s estimated that 82% of startups fail due to cash flow problems. Therefore, managing your cash flow effectively is the key to business survival. As a startup, having negative cash flow consistently means that your business will run out of cash and eventually close down. For this reason, cash flow planning is essential for startups.
Increased Forcasting Accuracy
With startup cash flow planning, you can visualize all of the scenarios you can think of for your business. This allows for greater confidence in making business decisions, planning expenses, and reporting business performance to investors. Startup cash flow planning allows you to highlight potential cash flow problems early enough, giving you an opportunity to steer your startup clear of any issues before they occur.
One of the most effective ways to manage startup cash flow is to have good relationships with customers, suppliers, and other business partners. Startup cash flow planning allows you to identify business partners that are crucial to your cash flow, enabling you to develop strong relationships with them.
Avoid Over Spending
Running a business without a startup cash flow plan results in overspending and misappropriation of resources.
Builds Investor Confidence
With SaaS cash flow planning, you can publish your forecasts to demonstrate your ability to manage a business responsibly. This increases the level of trust your investors place in your startup.
Generally, SaaS cash flow planning occupies an important place in the success of a business. An effective cash flow plan will help you address any shortfalls immediately hence preventing you from running out of money.
Common symptoms of cash flow problems
You’ll know your startup is having cash flow problems if you are experiencing the following:
A high inventory and low volume orders
Overextending your business
High account receivables
You startup just isn’t profitable
Startup cash flow problems can cripple your business, and the best way to fix these problems is to use a reliable SaaS cash flow planning software to manage cash flow planning. FirstOfficer offers top-of-the-line cash flow planning software that allows businesses to track expenses, revenues, and perform scenario planning.