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The Bootstrapped Startup: Cashflow is King.

- September 24, 2013 2 MIN READ

When you are bootstrapping your business and building your idea from the ground up, one of the top priorities with most startups in that critical stage of their business is to start building up some cash reserves. It is a difficult time for the bootstrapping founder, but there are some strategies and solutions that can help you ride the wave and get to that cash positive space you are aiming for.

  • Invoice Customers Regularly – Make sure your customers know your billing terms, be very clear about them up front. Whether it’s a deposit before work starts being completed or you invoice periodically throughout servicing the customer, you need to stay on top of your billing cycle and money that is due to come in.

  • Reward Early Payments – Rewarding customers who pay quickly is a great way to keep the cash coming in. Even a relatively small reward, such as a 5 percent discount for customers who pay before it is due, is usually enough to get the money coming in.

  • Make sure you conduct Credit Checks – Clients that are not in a position to pay, often will not be able to pay. Do not offer any credit to businesses that can’t manage their own cash flow.

  • Invest your cash in a High Interest Account – Don’t let large sums of cash sit in your business bank account. When your business has healthy cash reserves sitting in the account, look at high interest savings account options to grow it even further. Earn high interest savings on your business savings. The big banks have their eyes on your business savings

  • Have a financial plan – Accurate forecasting is critical to any business, write it out and stick to it, reward hitting goals and add shortfalls onto the next months sales targets. Often startups maintain the mentality of still being employed and think about cashflow on a monthly cycle. Thinking about your 12 month revenue goals and tracking this monthly by tracking how much you have left to go and what percentage of the overall task is completed will motivate you to invest more of your time on your sales and savings.

  • Pay your bills on time – Paying your bills is a fine balance of hanging on to your cash as long as possible and avoiding causing damage to supplier relationships, and above all avoid incurring any late fees as this will wipe out any interest earned as a result of holding the cash.

  • Benchmark your pricing – Make sure that you are actually turning a good profit, look at what your most successful competitors are doing with theirs. Being competitive is not always about low pricing, it is about creating value for your customers wherever you can. For example if you are a graphic designer, you may choose to charge a slightly higher rate than your competitor, but also give the customer unlimited changes and reviews to make that higher price worth it.

Building a strong foundation for your business and having the right systems in place includes insuring a degree of profitability and having cash reserves. Start your business thinking of the bigger picture first, assign budgets to each of your resources and include a savings plan for your profits.