There are three words that a lot of startups would love to use to describe their business…especially in 2023.
“Cash flow positive”
You know that’s easier said than done though.
If cash flow positive or reducing cash burn is a goal you have, then the good news is that there are some practical steps you can take to get closer to that goal.
Here are the three areas to dig more into with big impact:
Re-visit Accounts Receivable (A/R) & Accounts Payable (A/P)
Focusing on speeding up the money that comes into your business & slowing down the money that goes out can have an incredible impact on cash flow. If you’re consistently paying vendors faster than your customers are paying you, then you have to front that cash.
If no one in your organization has ownership over A/R or A/P, consider assigning someone that task. They can pull an A/R aging report to show who owes money and how old the balance is. That can be used to identify customers who have overdue balances or who are consistently late.
For A/P, a policy can be established across the organization that requires payment on the due date instead of before, unless a discount is offered for paying early. Consider asking big vendors if they’ll consider quarterly payment terms instead of annual as well. This can spread large payments out over the year.
The key here is having a true owner for A/R & A/P. Empower them & watch the creative ways they come up with to improve cash flow within the context of your business.
Evaluate Big Expense Categories
There are a few key areas that will add up to 80+% of your expenses.
Here’s a list of questions you can ask in those key areas to identify opportunities.
Headcount
Are there opportunities to consolidate roles?
Is outsourcing this role a way to save while still maintaining it's impact?
Software
If you have a software line item on your financials, pull the details from the last 12 months. Sort by amount spent & go through the top 10-20 vendors.
Are you still using all of the tools? Are there any you need to go back & review seat licenses for?
Advertising
Analyze ad spend for each channel to gauge how effective each is.
This can be calculated by taking how much new revenue has been generated during a certain period of time for a sales/marketing channel divided by how much has been spent over the same period of time.
Review Pricing & Churn
Is new revenue slowing down or just not where you need it to be? Evaluating pricing strategy could be the key to unlocking more revenue.
This doesn’t necessarily mean cutting prices to generate more sales. In fact, I’ve seen companies raise prices with minimal churn & increase revenue 2-3x overnight!
If you haven’t dusted off the pricing page of your website in a while, take a look. There might be some hidden value to unlock.
Now, let’s talk about everyone’s favorite word…churn.
You can be amazing at generating new sales, but if they leave then it doesn’t matter. The best way to manage churn is to create a feedback loop & have someone own churn.
Here’s an effective process to follow:
If you’re not tracking churn reasons, start now. Don’t hesitate to hop on a call with recent customers that have churned to ask them for feedback.
Report & review churn reasons on a regular cadence
Identify corrective actions if you see a trend developing
Repeat the process
You’re busy if you’re running a startup. You may not be able to do all of these, but pick one or two that are most critical to your business & take action this week.
The actions you take right now can directly impact what those financial statements show next month!
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