Startup cash flow management

Written by: Johann Barnard

As much as it’s a cliché to say that cash flow is the life blood of any business, this is also a universal truth and stark reality. Many a business has had to shut up shop because the money simply hasn’t come in quick enough, or at the right time, to allow the business to continue trading.

The best weapon against this crisis is to make use of a cash flow forecast. This is a spreadsheet that allows business owners to ‘see’ into the future based on projections of when cash will be received from sales and when expenses will be incurred.

Making these projections is a lot easier when you’ve been operating for a while, but what about when you’re just starting out and you have no track record on which to base these projections?

Jonathan Marshall, a chartered accountant with TSL Corporate Administrators that specialises in SME accounting, has the following advice:

1. Draw up a cash flow forecast
It is important to acknowledge that this is a forecast, so don’t panic if your initial assumptions do not meet reality. In fact, you should adjust your projections on a regular basis to ensure your financial future is secured.

Standard Bank has these monthly and quarterly cash flow forecast templates to get you started.

Depending on your business, some sales will be on credit, some will be on credit/debit cards and some will be on invoice. Each of these has different waiting periods – anything from a few days for debit/credit cards to 30, 60 or even 90 days on invoice or credit. Enter the expected payment waiting periods into your cash flow projection to avoid nasty surprises.

2. Nasty surprises
Nothing can throw you off quite as much as unexpected expenses. Some of these are unavoidable – such as emergency repairs – but other are totally avoidable.

Be aware that starting your business is going to eat up some cash. Registering a company and complying with business legislation, for example, is going to cost you before you even start trading. Include these expenses in your forecast.

3. Know your tax payment dates
Staying on the right side of tax authorities makes good business sense. Avoid any fallout or interest penalties by knowing when your various taxes and levies are due. Include these in your cash flow forecast to avoid falling in arrears.

4. Holidays and down times
Be aware of public (and even school) holidays. Your projections could easily be unrealistic if you fail to make allowance for periods of lower sales, or slower payments because your customers are in a holiday mood.