It’s a situation every founder dreads: you’ve got a great product, a solid team, and ambitious growth plans… but the cash is disappearing faster than a plate of biscuits at a board meeting. Running out of cash too quickly is one of the main reasons startups fail, but the good news is that cash flow issues can be managed with the right strategy.

If your startup’s runway is looking a bit short, don’t panic – yet. In this blog, we’ll walk you through five key steps to stabilise your cash flow and get your finances back on track.

Review Your Cash Flow Forecasting

First things first: if you don’t already have a cash flow forecast, now’s the time to build one. And if you do have one but haven’t looked at it in a while, it’s time for a refresh. Cash flow forecasting is your best friend when it comes to understanding where your money is coming from and, more importantly, where it’s going.

How to Create or Update Your Cash Flow Forecast:

• Track All Incomings and Outgoings: List every single expense your business has – salaries, rent, software subscriptions, everything. Then, look at all your revenue streams and forecast when you expect payments to come in.
• Identify Gaps: Use your forecast to identify when you might run into shortfalls. Are there certain months where expenses far exceed income? These are the periods you’ll need to prepare for.
• Update Regularly: Cash flow forecasts aren’t “set and forget.” Make sure you’re updating it regularly (monthly, at the very least) to reflect changes in your business.

Tighten Up Your Payment Terms

If you’re waiting 60 or 90 days to get paid for your services, it’s no wonder your cash flow is suffering. Long payment terms can choke your business’s liquidity, leaving you scrambling to cover expenses. Tightening up your payment terms can be one of the quickest ways to improve your cash flow.

Steps to Improve Payment Terms:

• Negotiate Shorter Payment Periods: If you’re currently offering clients 60 or 90 days to pay, consider negotiating for 30 days. The shorter the payment cycle, the quicker the cash will hit your account.
• Offer Incentives for Early Payment: Sweeten the deal by offering clients a small discount for paying invoices early – 2% off for payment within 10 days, for example. It’s a win-win: you get your cash faster, and they save a little money.
• Invoice Promptly: Don’t wait until the end of the month to send out invoices. The quicker you bill your clients, the quicker you get paid.

Cut Non-Essential Costs

When cash flow is tight, it’s time to look at cutting back on non-essential expenses. That doesn’t mean slashing everything to the bone, but it does mean being ruthless about what’s truly necessary for your business to operate and grow.

Areas to Consider Cutting:

• Subscriptions and Software: How many tools or services are you paying for that you don’t really need? Audit your software stack and cancel anything that’s not mission-critical.
• Office Space: If your team is working remotely, do you really need to be paying for that fancy office? Even downsizing or going fully remote can make a huge difference to your cash flow.
• Marketing Spend: Look at your marketing budget. Are you spending on campaigns that aren’t delivering results? Focus your spend on the areas with the highest ROI.

Secure a Line of Credit

Sometimes, even with the best cash flow forecasting and cost-cutting measures, you’ll hit a bump in the road. That’s where securing a line of credit can be a lifesaver. Having access to a credit line gives you a safety net to cover short-term gaps in your cash flow without the need to raise additional equity.

Why a Line of Credit Can Help:

• Flexibility: Unlike a loan, a line of credit gives you access to funds when you need them and only requires you to pay interest on the amount you actually use.
• Bridge Short-Term Gaps: If you know cash is coming in but need to cover expenses in the meantime, a line of credit can help you bridge the gap.
• Build Business Credit: If used wisely, a line of credit can help build your business’s credit profile, making it easier to secure financing in the future.

Increase Recurring Revenue

One of the best ways to stabilise your cash flow is to focus on generating recurring revenue. Unlike one-off sales, recurring revenue provides a predictable and consistent stream of income, which makes it much easier to manage your cash flow.

How to Increase Recurring Revenue:

• Introduce Subscription Services: If your business model allows, consider offering a subscription service. This could be anything from monthly software subscriptions to ongoing service retainers.
• Upsell Existing Clients: If you already have a client base, look for opportunities to upsell them on recurring services or long-term contracts. For example, can you offer a maintenance or support package that ensures repeat business?
• Automate Renewals: Make it easy for customers to renew their contracts or subscriptions by automating the process. The less friction there is, the more likely they are to stick around.

Wrapping It Up

Cash flow issues are a common challenge for startups, but they don’t have to be the end of the road. By taking proactive steps – such as improving your cash flow forecasting, tightening up payment terms, cutting unnecessary costs, securing a line of credit, and increasing recurring revenue – you can stabilise your finances and extend your startup’s runway.