5 tactics for better startup cash flow: 🧵
When managing a real company, Accounting 101 begins to make sense.
Showing a profit, I thought we we're cruising..
Until I checked the bank accounts.
There had to be a mistake...
Showing a profit, I thought we we're cruising..
Until I checked the bank accounts.
There had to be a mistake...
How can there be profit, but NO CASH?
This (almost) catastrophic lesson changed my business forever.
I learned revenue & profit are secondary to CASH FLOW.
Cash management is key to a healthy business that can fuel growth & pay shareholders.
Let's dive in...
This (almost) catastrophic lesson changed my business forever.
I learned revenue & profit are secondary to CASH FLOW.
Cash management is key to a healthy business that can fuel growth & pay shareholders.
Let's dive in...
1. RAISE PRICES:
The fear of losing (good) customers from price increases is typically unfounded.
With great service, switching costs outweigh the pain of paying more.
HOW:
Communicate often & build a relationships to de-commoditize vs. other options.
The fear of losing (good) customers from price increases is typically unfounded.
With great service, switching costs outweigh the pain of paying more.
HOW:
Communicate often & build a relationships to de-commoditize vs. other options.
WHY:
It costs nothing & requires minimal effort to extract more cash from the existing customer base.
Better yet, all increases flow in as free cash.
BONUS: non-ideal customers will search for another option.
It costs nothing & requires minimal effort to extract more cash from the existing customer base.
Better yet, all increases flow in as free cash.
BONUS: non-ideal customers will search for another option.
2. RESOURCE UTILIZATION
Maximize return on fixed assets & employee efforts before adding more.
Suboptimal use of resources is an "invisible" drain on cash flow.
Maximize return on fixed assets & employee efforts before adding more.
Suboptimal use of resources is an "invisible" drain on cash flow.
HOW:
Leverage VA's to create more time for employees to work on the tasks that generate cash.
Or find additional cash flow sources from existing assets.
EX: lease empty offices to solopreneurs.
Leverage VA's to create more time for employees to work on the tasks that generate cash.
Or find additional cash flow sources from existing assets.
EX: lease empty offices to solopreneurs.
WHY:
Top performers' time > repetitive tasks.
Generating more cash from the existing cost structure has positive influence on ROI.
Also, employees are energized & earn more working on productive tasks.
Win/Win.
Top performers' time > repetitive tasks.
Generating more cash from the existing cost structure has positive influence on ROI.
Also, employees are energized & earn more working on productive tasks.
Win/Win.
3. LOWER OVERHEAD
Over time, its inevitable expenses add up.
Review & trim quarterly.
HOW:
Keep an organized P&L and assign team members to monitor major line items in their department.
Marketing, insurance, and SaaS tools are usual suspects for overspend.
Over time, its inevitable expenses add up.
Review & trim quarterly.
HOW:
Keep an organized P&L and assign team members to monitor major line items in their department.
Marketing, insurance, and SaaS tools are usual suspects for overspend.
WHY:
Random expenses without attributable ROI drain cash flow & should be removed.
ANECDOTE:
Recently received an insurance audit and was overcharged by $23,000! Carefully review audits & paperwork.
(Don't worry, got it back!)
Random expenses without attributable ROI drain cash flow & should be removed.
ANECDOTE:
Recently received an insurance audit and was overcharged by $23,000! Carefully review audits & paperwork.
(Don't worry, got it back!)
4. RECIEVABLES
Work completed, expenses incurred, & no cash collected = worst case.
HOW:
Someone is accountable & incentivized for collecting cash.
Also, ask for partial or full pre-payment.
At a minimum negotiate contracted payment terms - never more than T-30.
Work completed, expenses incurred, & no cash collected = worst case.
HOW:
Someone is accountable & incentivized for collecting cash.
Also, ask for partial or full pre-payment.
At a minimum negotiate contracted payment terms - never more than T-30.
WHY:
Providing service without payment is risky as expenses, like payroll, are incurred regardless.
Without strict rules, customers will widen the delta between service & payment - causing cash issues to worsen.
Be firm about collection.
Providing service without payment is risky as expenses, like payroll, are incurred regardless.
Without strict rules, customers will widen the delta between service & payment - causing cash issues to worsen.
Be firm about collection.
5. PAYABLES:
Random bill pay is the enemy of healthy cash management.
HOW:
Someone is accountable & incentivized to set a consistent cadence & method for payment.
EX: Pay all expenses on the 5th & 25th via credit card.
Random bill pay is the enemy of healthy cash management.
HOW:
Someone is accountable & incentivized to set a consistent cadence & method for payment.
EX: Pay all expenses on the 5th & 25th via credit card.
WHY:
A rhythmic relationship between payables & receivables instills confidence in management.
With high confidence, execution of new initiatives & opportunities happens quickly.
Speed = success
A rhythmic relationship between payables & receivables instills confidence in management.
With high confidence, execution of new initiatives & opportunities happens quickly.
Speed = success
If you need further proof cash is KING...
Industry leaders have 3X cash on hand compared to industry averages.
To go from startup to industry leader, begin with cash flow management.
Industry leaders have 3X cash on hand compared to industry averages.
To go from startup to industry leader, begin with cash flow management.
If you found this helpful, please RT the 1st tweet so others can find it.
Follow me @barrettjoneill for more content on business strategy & growth.
h/t @scalingup for the inspiration & help.
Follow me @barrettjoneill for more content on business strategy & growth.
h/t @scalingup for the inspiration & help.
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