Why Cash Flow Matters
Cash flow is the lifeblood of your startup. More startups fail due to cash flow problems than any other reason. Understanding and managing it is critical.
The Cash Flow Statement
Your cash flow statement shows money coming in and going out. It's divided into three sections: operating activities, investing activities, and financing activities.
Forecasting Cash Flow
Build a 12-month rolling cash flow forecast. Update it monthly with actuals and adjust your projections. This helps you anticipate cash crunches before they happen.
- Track burn rate monthly
- Calculate runway (months of cash remaining)
- Monitor payment terms with customers and vendors
- Plan for seasonal variations
Improving Cash Flow
Strategies to improve cash flow include:
- Negotiate better payment terms with vendors
- Offer discounts for early payment from customers
- Reduce inventory levels
- Cut unnecessary expenses
- Consider invoice factoring for B2B businesses
The Danger Zone
When your runway drops below 6 months, it's time to either raise capital or significantly cut costs. Don't wait until the last minute.