{"id":45092,"date":"2023-10-20T15:41:04","date_gmt":"2023-10-20T15:41:04","guid":{"rendered":"http:\/\/startupsmart.test\/2023\/10\/20\/cash-flow-dangers-six-issues-that-bring-a-startup-down-startupsmart\/"},"modified":"2023-10-20T15:41:04","modified_gmt":"2023-10-20T15:41:04","slug":"cash-flow-dangers-six-issues-that-bring-a-startup-down-startupsmart","status":"publish","type":"post","link":"https:\/\/www.startupsmart.com.au\/uncategorized\/cash-flow-dangers-six-issues-that-bring-a-startup-down-startupsmart\/","title":{"rendered":"Cash flow dangers \u2013 Six issues that bring a startup down – StartupSmart"},"content":{"rendered":"
\"\"<\/div>\n

The first 12 months of a startup is hugely exciting time, but important to your success is cash flow.<\/p>\n

 <\/p>\n

 <\/p>\n

Issue one: Slow payment times<\/h3>\n

 <\/p>\n

 <\/p>\n

Nothing can bring a startup undone faster than slow payment times, and waiting months to get paid for products or services is an instant path to a cash flow crisis.<\/p>\n

 <\/p>\n

With the average payment time in Australian business taking around 56 days, the implications for that cash struggle are huge, says Dun & Bradstreet CEO, Gareth Jones.<\/p>\n

 <\/p>\n

\u201cDepending on committed outgoings against your income, it can easily have impact on the ability to pay wages, the ability to pay other trade suppliers, and the ability to purchase new products.\u201d<\/p>\n

 <\/p>\n

\u201cThose figures show cash collection is the worst it\u2019s ever been in Australia,\u201d says Kevin Moore, retail expert and Chairman of Crossmark Asia-Pacific Holdings.<\/p>\n

 <\/p>\n

\u201cAnd as a backdrop to that, we have startups and SMEs stuck at the bottom of the chain. A lot of large corporations complain about large retailers, but the large corporations are also holding money for smaller businesses. It\u2019s a whole ecosystem where everybody is struggling to collect cash.\u201d<\/p>\n

 <\/p>\n

 <\/p>\n

Issue two: Lack of a credit policy<\/h3>\n

 <\/p>\n

 <\/p>\n

Any startup worth their salt must have a clear credit policy that takes into account the rhythm and cycle of the business, says Jones.<\/p>\n

 <\/p>\n

\u201cEstablishing a model that says, \u2018OK my business needs to expend this amount of cash over a 30-day period, and therefore I need a certain amount of cash in to balance that book\u2019 should be done upfront, as it will help you set your credit policy. This process is absolutely critical, but often it\u2019s not executed properly, or it doesn\u2019t reflect what\u2019s really going on in the business \u2013 and that can quickly bring you undone.\u201d<\/p>\n

 <\/p>\n

 <\/p>\n

Issue three: Not doing your homework<\/h3>\n

 <\/p>\n

 <\/p>\n

A failure to perform due diligence sees many entrepreneurs lose sleep at night. And it\u2019s a two-step process.<\/p>\n

 <\/p>\n

First, there\u2019s the diligence you need to perform on your own business.<\/p>\n

 <\/p>\n

\u201cWhen you\u2019re in the startup stage, you need to be diligent that every single week you\u2019re looking at your bank account, you\u2019re looking at how much your business is going to cost you, and you understand where your breaking point is,\u201d Moore says. \u201cThose are things you need to look at all the time \u2013 if you don\u2019t, you\u2019ll find yourself in dangerous territory.\u201d<\/p>\n

 <\/p>\n

Then there\u2019s doing your homework on your customers to avoid potential disaster.<\/p>\n

 <\/p>\n

\u201cDoing credit checks on customers is absolutely critical,\u201d Jones says. \u201cThis will give you a lot of insight in terms of the risk that you\u2019re taking and allow you to plan for it accordingly, rather than extending credit terms to everyone and ending up in a cash flow hole.\u201d<\/p>\n

 <\/p>\n

 <\/p>\n

Issue four: Losing control of the finances<\/h3>\n

 <\/p>\n

 <\/p>\n

According to Moore, \u2018businesses don\u2019t go under because they\u2019re not profitable. They go under because people are not managing their cash\u2019.<\/p>\n

 <\/p>\n

Startups often struggle to gain ground in the early days, and it\u2019s okay to be losing some money \u2013provided you\u2019ve done your homework when it comes to your balance sheet.<\/p>\n

 <\/p>\n

\u201cIf you\u2019ve got a business that\u2019s got the right backing, you can lose money for a period of time \u2013 if it\u2019s got the right balance sheet and cash structure available,\u201d says Moore. \u201cBut if you lose control of your cash flow, your business is vulnerable.\u201d<\/p>\n

 <\/p>\n

 <\/p>\n

Issue five: Taking on bad debt<\/h3>\n

 <\/p>\n

 <\/p>\n

Bad debt is a killer. And for a startup, putting policies and procedures in place to mitigate risk is absolutely critical. But according to Jones, most startups fail to have a rigorous process when it comes to managing their accounts receivable base.<\/p>\n

 <\/p>\n

\u201cWhen you\u2019re just starting out, if one of your customers isn\u2019t either willing or able to pay you, and you have to effectively write off a significant amount of income (and therefore cash), that can be crippling, based on the size of that customer and the proportion of your income stream or cash flow that it is.\u201d<\/p>\n

 <\/p>\n

 <\/p>\n

Issue six: Avoiding commercial realities<\/h3>\n

 <\/p>\n

 <\/p>\n

\u201cAlmost everyone who starts their own business does so because they\u2019re passionate about one thing. But to be passionate about something doesn\u2019t mean you\u2019re a business person,\u201d says Moore.<\/p>\n

 <\/p>\n

Which is not to say that you can\u2019t learn those skills. But if you know that numbers isn\u2019t your thing, don\u2019t stick your head in the sand \u2013ask an expert for help, or you\u2019ll be staring down a cash flow hole before you know it.<\/p>\n

 <\/p>\n

In the case of startups and finance, ignorance is not bliss.<\/p>\n

 <\/p>\n

Written by: Megan Gamble<\/p>\n

 <\/p>\n

 <\/p>\n

This article is sponsored by Australia and New Zealand Banking Group Limited ABN 11 005 357 522 (ANZ). The views and recommendations that are made in this document are those of the author and not ANZ. To the extent permitted by law, ANZ disclaims liability or responsibility to any person for any direct or indirect loss or damage that may result from any act or omission by any person in relation to this material..<\/span><\/em><\/p>\n

 <\/p>\n

\n

Success starts here<\/em><\/strong><\/p>\n

If you\u2019re thinking of starting a small business, or have recently launched one, you want to do everything you can to ensure its success. Visit the $2 Billion Lending Pledge to find your local ANZ Small Business Specialist and get an indication of how much you could borrow.<\/em><\/p>\n<\/p><\/div>\n","protected":false},"excerpt":{"rendered":"

The first 12 months of a startup is hugely exciting time, but important to your success is cash flow.  <\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[25,3,4,22,1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/45092"}],"collection":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/comments?post=45092"}],"version-history":[{"count":0,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/posts\/45092\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/media?parent=45092"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/categories?post=45092"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.startupsmart.com.au\/wp-json\/wp\/v2\/tags?post=45092"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}