If you search something like “common startup problems” on the web, chances are that many of your results concern something related to cash flow or cash flow issues. These days, there are many startup companies on the market, but the majority of startups eventually burn out and fail due to a number of reasons.
As you probably guessed, one of the major reasons that startups don’t see the success that they deserve is due to cash flow issues. Cash flow issues can be further identified as a number of working capital-related problems that inhibit the growth of your startup. In this post, we wanted to touch on some of those cash flow problems along with some insight on the prevalence of startup companies. Read below to learn more about these typical working capital issues with startups and small businesses and to see how The Commercial Finance Group can help with our factoring and cash flow solutions!
Cash Flow Can Be a Killer
Poor cash flow truly is a major issue for countless small businesses and startups, regardless of the industry. According to Dunn & Bradstreet, a commercial data company, 90 percent of small business failures are caused by poor cash flow. As simply as we can put it, poor cash flow equates to not enough cash coming in the door and too much cash going out the door. Businesses need to get paid on time and manage their outgoings in order to maintain a successful upward business trend.
Why So Many Startups?
One of the reasons that cash flow issues are so prevalent is simply because there are many startups and small businesses on the market for cash flow issues to prey on. Take note that we do embrace startup culture and innovation here at The Commercial Finance Group – after all, they create value where nothing existed before and bring products and services to market that were previously unimaginable.
One of the reasons that there are so many startups in today’s market, especially in America, is because there is a rising cultural acceptance of risk and even failure in businesses. The desire for innovation, change, and the willingness to push boundaries have fed the growth of venture capitalists who can back would-be startup founders by putting money on the line. Additionally, there’s been a massive rise in new technologies and SaaS companies (Software as a Service) over the past 10-15 years or so, and this has opened up a whole new world for people, including investors, to explore and use to their advantage.
You Should Document Cash Flow Projections
Countless small businesses and startups make the mistake of failing to document their cash flow projections. While documenting projections sounds like something of a dry business formality, successful entrepreneurship is about planning ahead for the future to make sure that you and your business are prepared for whatever comes down the pipeline.
In other words, no matter how small your company is today, there are more moving financial parts than you can dynamically manage in your head. While you can’t predict everything that’s going to happen in your company’s future, what you can do is write down everything that you know in order to identify existing problems sooner and allow other team members to help out.
Being Within Budget Doesn’t Mean Having Cash
A lot of startups and smaller companies are on track with their budget, but what they don’t realize is that they’re also out of cash. Indeed, in the real world, spending occurs very quickly while waiting for money to come in can take quite some time, or so it seems.
So, your monthly budget may balance, but if the income that you were counting on coming on is delayed for any reason, and arrives later than your planned expenses, then you’ll end up with a short-term cash flow surprise shortage. This isn’t the good kind of surprise, and neither banks nor investors will provide you with much help on the matter.
It Is Possible To Be Profitable And Broke
Being profitable and yet broke at the same time sounds like a bit of an oxymoron, but in the context of cash flow issues, this is very much a real thing that startups and small businesses face.
For one, profits don’t necessarily translate into cash. What this means is that you can make profits without making any money, and this is due to the fact that the first priority of most startups is to reinvest everything back into the business itself for growth-related purposes. Sure, there are multiple accounting tricks to make your business look profitable or seem profitable, but you’ll need actual cash to pay your bills.
Unexpected & Emergency Expenses
Unanticipated expenses can really hurt your startup’s cash flow, and this is one of many reasons why it’s so important to practice due diligence and plan ahead. Almost any startup will inevitably experience some sort of emergency or setback that wasn’t accounted for, so do yourself a favor now and expect the unexpected. You’ll thank us later.
You Grew a Little Too Fast
While growth is one of the main goals of businesses, if you grow faster than anticipated, this can cause some problems for you. You see, the faster you grow, the more cash you’ll need to build products, facilities, staff, and service. These are up-front costs that can’t be pushed back multiple months before your sales and revenue catch up. If you can’t deliver to match your rate of growth, things will come tumbling down. It is crucial to monitor growth closely and accurately project for the future.
We’re Here To Help
If any of this startup or small business insight seems daunting for you, don’t worry. The Commercial Finance Group has successfully worked with countless small business operations by providing financial services like working capital solutions, receivable factoring, and other cash flow solutions to help your startup or small business overcome obstacles and achieve the steady growth that you’ve been working so hard to achieve. Whether you own your own business, founded a technology startup company, or you’re involved in the healthcare industry, The Commercial Finance Group is fully equipped and experienced to make your cash flow issues a thing of the past. We know that successfully operating a business is a challenge, but we can make things just that much easier for you. If that sounds good to you, contact us today to see what we can do for you!
