What Advice Would You Offer New Entrepreneurs About Managing Cash Flow in Early-Stage Startups?
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What Advice Would You Offer New Entrepreneurs About Managing Cash Flow in Early-Stage Startups?
Navigating the financial tides of a new venture can be daunting, so we've gathered insights from nine seasoned entrepreneurs and CEOs to steer you in the right direction. From the importance of knowing your numbers for profit to building a cash buffer early on, these founders and business leaders offer their single most valuable piece of advice for managing cash flow in the startup phase.
- Know Your Numbers for Profit
- Invest in the Right Team
- Delay Non-Essential Expenses
- Prioritize Spending for Growth
- Avoid Over-Hiring Early On
- Understand Your Credit Options
- Always Prioritize Liquidity
- Track Cash Flow Daily
- Build a Cash Buffer Early
Know Your Numbers for Profit
As an eight-figure entrepreneur, here's my advice: Know your numbers. Figure out what your business expenses are and how many sales you need to make a profit. That'll make managing your cash flow simpler. For example, for one of my course launches, my goal was to make $100k. I knew that by selling my course for $3k, I'd need 33 sales to hit my goal. I also knew that I could expect a conversion rate of about 1%, which meant that I needed to spend about $10k upfront to attract a big enough audience.
Result: I hit my goal. But if I hadn't known my numbers, I wouldn't have known how much to invest. Bottom line: Understanding your financial position will help you take calculated risks and maximize your ROI.
Invest in the Right Team
One key piece of advice I'd offer to a new entrepreneur about managing cash flow in the early stages of a startup is to invest in the right people from the beginning. At Carepatron, we've found that bringing on the right team members—those who align with your mission and can take ownership of their roles from day one—has a profound impact on both cash flow and overall success. By empowering your team with autonomy and trust, you not only enhance productivity but also reduce the costly turnover and inefficiencies that can drain resources. In the early stages, having a dedicated, capable team can make all the difference in navigating financial challenges and driving sustainable growth.
Delay Non-Essential Expenses
My advice is to delay any unnecessary expenses and focus on the essentials that directly contribute to your business's revenue and growth. In the excitement of launching a startup, it's easy to overspend on tools, office space, or marketing campaigns that aren't immediately necessary. Instead, adopt a lean mentality, investing only in what moves the needle and can be justified by immediate returns. This disciplined approach to spending will protect your cash reserves and give you the flexibility to pivot if the market demands it.
Prioritize Spending for Growth
My advice for managing cash flow in the early stages of a startup is to prioritize your spending. Focus on essentials that directly contribute to growth, such as marketing and product development, and avoid unnecessary expenses. Also, keep a close eye on your cash flow by regularly reviewing your finances, and always plan for the unexpected by setting aside a cash buffer. This approach will ensure you have the funds needed to keep the business running smoothly while you work on scaling.
Avoid Over-Hiring Early On
As a working recruiter, and the CEO of my own recruiting firm, I know how tempting it is to over-hire in the early days of launching a business. There are so many positions that sound important, and if successful businesses have them all staffed with specialized and dedicated workers, shouldn't you too?
Pump the brakes whenever possible. Salaries will stretch you thin in those early years, and an expansive payroll can be the thing that sinks you in lean times. Ask yourself if you'll really have enough work coming in to keep the whole team busy, and be honest about the possibilities, imagining both a best- and worst-case scenario. Many workers are happy to wear multiple hats; for example, managing social media in addition to handling the office. Remember, it's always easier to bring on a new member than to let go of someone, and far less costly in the long-term, too.
Understand Your Credit Options
Understanding your credit options is so important in the early stages of a startup. It's something I wasn't on top of back then, and I'd advise new entrepreneurs to learn from my mistakes. When you need stopgap cash, timing is everything, and banks tend not to keep the best hours. Moving quickly requires pre-existing knowledge, so before it gets to that point, go in and speak with a business specialist. That extra time will allow you to shop around for the best offer, and plan ahead with all modifications or extensions in mind.
You'd be surprised how flexible the options are when you develop a relationship early, so take notes and ask questions. That's something you won't have the luxury of doing at the last minute, and the result of your procrastination could be terms that are hard to manage and might even prevent your business's success.
Always Prioritize Liquidity
My single piece of advice to a new entrepreneur about managing cash flow in the early stages of a startup is to always prioritize liquidity. It's easy to get caught up in long-term investments or the pursuit of growth, but without sufficient cash on hand to cover daily operations, your business can quickly become unsustainable. Focus on maintaining a healthy balance between expenses and revenue, and don't hesitate to utilize tools like financing, payment plans, or even outsourcing to avoid large upfront costs. This approach allows you to adapt to unexpected challenges while maintaining the flexibility needed to grow strategically.
In the early days of a startup, cash flow is your lifeline. Keep a close eye on your inflows and outflows, and ensure that you're staying nimble enough to pivot if necessary. Having this financial discipline can make the difference between surviving your first year and thriving for many years to come.
Track Cash Flow Daily
As an entrepreneur who's built tech startups from the ground up, cash-flow management has been essential to survival. My key advice is simple: track your cash daily and keep a cash-flow projection. Know how much is coming in and going out each week, and how much you need to operate.
Streamline your revenue collection and try to get paid upfront. Offer discounts for advance payment or subscriptions. The faster you get paid, the more you can invest in growth.
Keep overhead low and only spend on essentials, especially at first. It's easy to ramp up spending, but hard to cut back. Consider outsourcing or using freelancers instead of hiring full-time.
Leave room for unexpected costs, which always come up. Keep at least a few months of expenses in a savings fund for emergencies. It'll give you breathing room to fix cash-flow issues before they become catastrophic.
With diligence, you can achieve positive cash flow, but it requires daily rigor and financial discipline. The confidence of knowing your cash position and staying in control of it is worth the effort.
Build a Cash Buffer Early
In the early stages of my self-storage business, I was cautious about overextending on expenses and avoided tying up too much capital in non-essential upgrades. Instead, I prioritized building a cash buffer to cover unexpected costs or market shifts. Having that reserve gave me the flexibility to navigate challenges without scrambling for funding, ensuring the business could stay afloat during lean periods.
