Cash flow plays an extremely important role in the survival and development of any business, especially startups. Negative cash flow can lead to capital shortages, affecting business operations and even bankruptcy. This article will mention solutions to help startups improve cash flow effectively.

What is cash flow?

Cash flow is an important term in the financial sector, especially for businesses. Cash flow refers to a business’s flow of cash or cash equivalents over a given period of time. It reflects a business’s ability to generate cash and pay off short-term debt.

While Cash flow is an overall concept, other phrases related to cash flow go deeper into specific aspects:

Free Cash Flow (FCF)

Free cash flow is the amount of cash remaining after a business has paid all operating and investment expenses. FCF shows a business’s ability to generate cash from its core business activities.

Net Cash Flow (NCF)

Net cash flow is the overall change in a business’s cash and cash equivalents during a given reporting period. NCF is usually calculated by adding operating cash flow, investment cash flow and financing cash flow.

Cash Flow Statement

This is a financial statement summarizing a business’s cash inflows and outflows, classified into three main activities: business activities, investment activities and financial activities. The Cash Flow Statement provides detailed information about the origin and use of a business’s cash.

Cumulative Cash Flow

Cumulative cash flow is the sum of net cash flows over a given period of time. It shows the total amount of net cash the business has generated or used during that period.

Discounted Cash Flow (DCF)

This is a technique of valuing assets based on the cash flows expected to be generated in the future. Future cash flows are discounted to their present value, taking into account risk and inflation. The Discounted Cash Flow method is commonly used to value stocks, bonds, and other investments.

Why is cash flow one of the most important factors for businesses?

Cash flow is a specific expression of a business’s liquidity and financial stability. It allows businesses to maintain daily operations, invest in new opportunities and repay debt on time. A positive cash flow also boosts investor confidence and facilitates business expansion.

Meanwhile, negative cash flow can lead to a shortage of working capital, putting pressure on production and business activities and even bankruptcy. Therefore, effectively managing cash flow is the key to maintaining the survival and sustainable development of a business.

Solutions to improve cash flow for Startups

Cash flow is an important factor for the survival and development of any business, especially startups. Good cash flow helps businesses have enough capital to maintain operations, invest in development and respond to unexpected risks. Below are some solutions to improve cash flow for startups, helping businesses optimally manage their finances:

Accurately estimate the costs incurred

In financial management of a Startup, accurately estimating expenses will help businesses control cash flow and avoid capital shortages. A detailed financial plan will include both fixed and variable costs, thereby helping managers make smart investment decisions.

Here are some steps to accurately estimate additional costs:

• Identify types of costs incurred: Classify costs into groups (for example: production costs, marketing costs, administrative management costs…); List all possible expenses in each group.
• Predict costs for each item: Use historical data, financial reports, and business forecasts to estimate costs for each item. At the same time, refer to market prices and quotes from suppliers to predict costs more accurately.
• Risk analysis and budget provisions: Identify risks that can affect cost levels (for example: raw material price fluctuations, tax policy changes…); Budget provisions for costs arising from risks.
• Monitor and update cost estimates: Regularly monitor and update cost estimates based on the actual situation; Compare actual costs with budgeted costs to evaluate the accuracy of the estimate.

Minimize purchasing costs

Purchasing costs are one of the biggest expenses for startups. To minimize these costs, businesses can apply measures such as negotiating prices with suppliers, purchasing in large quantities to enjoy incentives, or finding cheaper sources of supply, etc.

However, it should be noted that minimizing purchasing costs does not mean buying cheap goods. Businesses need to ensure product and service quality when purchasing goods at low prices. At the same time, you need to consider other factors such as delivery time and after-sales service when choosing a supplier.

Increase sale revenue

Increasing sales is one of the most effective ways to improve cash flow for Startups. Here are some solutions to help you increase sales:

• Understand target customers: Research the needs, preferences and purchasing behavior of target customers; Identify your competitors’ weaknesses to create a competitive advantage for your product.
• Develop products or services that meet market needs: Provide high quality products or services at competitive prices; Focus on customer experience to differentiate yourself from your competitors.
• Build an effective marketing strategy: Use appropriate marketing channels to reach target customers; Create engaging marketing content and attract customers. At the same time, use online marketing tools to measure marketing campaign effectiveness.
• Enhance sales: Train sales staff on sales skills and product knowledge; Build an effective sales process; Offer promotions and discounts to attract customers.
• Provide good customer service: Respond to customer inquiries and complaints quickly and effectively; Build good relationships to retain customers, etc.

Debt recovery

Timely debt collection is an indispensable part of cash flow management. Startups need to have clear policies on debt collection to ensure that debts are collected promptly, thereby helping to improve the business’s cash flow.

Improving cash flow is a continuous process and requires the efforts of the entire startup team. If you know how to apply appropriate solutions and monitor performance, it will help your business secure operating capital, maintain sustainable development and aim for success.