Question

The importance of cashflow for businesses, both startups and existing ones can not be overemphasized. In view of inflationary pressures:

1. How can startups adopt real cashflow for their activities?
2. How can existing business adopt real cashflow projections as a tool to edge competitors?

Answer 1

Cash flow management is a process by which the organization (startup/established firm) manages the inflows and outflows of cash from all shareholders like customers, vendors, debtors, owners etc. Efficient management of cash is essential for to ensure no cash crunch happens and thus prevent default of payment to any parties. It is also essential so that efficient use of available money (excess cash decrease the growth or profit potential of the firm as this money can have a more profitable alternate use).

A critical step to real cashflow projection will start from the right measures to ensure the timely receipt of receivable. Quite often failure in getting receivables is the reason for cashflow challenge. Startup while adapting real cash flow projection shall link the receivables with payables respective. For eg. Vendor payment against a particular order or project shall be linked to the receivables from it. This will start at contract negotiations stage in finalizing credit terms with supplier / Vendor and clients. Inventory liquidation is another consideration to be mapped in cashflow projection.

For eg: mapping current assets to current liabilities in a simpler way will look like. Receivables should fund the payables - such as vendor payments, working capital interest charges, other periodiv expenses etc. Quite often inventory keep building during the process hence companies need to keep a watch on inventories to ensure money blocked there is liquidated and released into system else it will create an imbalance.