Most of the start-up companies that don’t make it past the five-year mark often fail due to poor cash flow management. With the right approach to money management, companies can avoid such trap and thrive.
Poor cash flow management is among the leading cause of business failure in the UK. In fact, only 91 percent of start-ups make it through the first year. In the following five years, six out of ten will have closed shop, according to recent research.
Most of the failed business suffer because they fail to leverage innovative financial solutions such as financial management software. Such technology can help you avoid common pitfalls that lead to poor cash flow. Here are some credible ways to avoid falling into traps that ensnare many start-ups.
Demand upfront payments
New businesses often go to great lengths to endear their services to their prospective clients. In most cases, some entrepreneurs are ready to bend over backward to accommodate the wishes of a client. Unfortunately, this tends to work against them. If you are coming from a weak financial position assume cash on delivery mode of operation.
If you must extend credit, opt for short-term invoice payable in 30 days or less. Otherwise, open-ended invoices or long-term ones can cripple your operations. Don’t be too eager to please a client that you fail to address such crucial details. Cash flow is the lifeblood of your business, and as such, you need to ensure it flows freely round the clock.
Perform a credit check
It might seem intrusive or even overkill but as the adage goes, ‘better safe than sorry.’ In business, it all about other people’s monies and some companies are quite adept at doing so. They will delay paying your invoice by up to several months. In the meantime, you will be struggling to pay off your creditors, workers, or even pay rent on your premises.
You can avoid such problems by pre-qualifying your clients. If a customer has a terrible history paying their creditors, don’t think they’ll make an exception for you.
Poor cash flow management is the bane of many start-ups, and it causes them to fail within five years. With the help of the right technology, you can avoid such issues and grow your firm to achieve great success.