It can be difficult to maintain a positive cash flow as a startup. It’s already scary trying to keep track of all the requirements of getting your business going. Your head is swirling with the intensity and issues of getting rolling. Not to mention staying in business. You’ve got great ideas of what you want to do, why it’s going to be great but you have to get it going. If you want to learn some tips on how to maintain a positive cash flow as a startup, keep on reading!
Daily Habits Lead to Future Savings – A Real Story
Hello! My name is Stacey and I’m the marketing coordinator at UpSide Accounting. Even before I started working here, cash savings has been an important factor in my life. I was always a bit of a shopaholic (maybe more than a bit), but I also had big plans for my future (like my dream prom dress, University, and a house). To solve this conflicting dilemma, I created a strategy. I decided to save half of every paycheck into a separate savings account – not to be touched – and the other half I was free to use as I pleased. I did this ever since I started earning money at the ripe age of 14.
By the time I got to University (at 17 years-old), I had so much in savings that I was able to buy myself a used car and pay for my own tuition! Even my older brother needed me to loan him money for a down payment on his car. This strategy gave me the freedom that I needed. I never felt tight on cash because I still had spending money to have fun with, while the other half I didn’t see and went directly to my savings account to grow.
If that didn’t convince you that everyday habits can turn into huge future savings, I’ll take one more shot at it. I worked mostly part-time hours so I only saved approximately $100-250 every two weeks. But after only 3 years of accumulating savings and interest income, not only was I able to afford to buy my dream prom dress and a car all by myself, I was able to put myself through 4 years of University that costed 5K a semester. Note that I did continue working full-time summers between school to maintain this positive cash flow. But nevertheless, it goes to show just how easy it is to see significant results from everyday decisions.
Maintain a Positive Cash Flow as a Startup
1. Save, save, save!
First things first. As I mentioned earlier, if you want to maintain a positive cash flow as a startup you need to save! I would highly suggest you open a separate savings account and allocate a fixed amount of your income towards it on a weekly, bi-weekly, or monthly basis. Start with $50 and once you realize you barely notice being short that amount, save a larger amount on a regular basis.
2. Set up an expense account.
This is where the majority of your funds should be to cover your everyday business expenses. You should also use this account to pay down any debt you might have.
3. Price Strategically
The first thing you should do before pricing your products/services is to calculate your break-even point. This is where your sales income equals your costs of goods sold. At a minimum, you want your sales to cover your costs. The goal, however, is to make a profit. In this case, think of how much you would like to profit and set that as R. Then set y as your total costs and solve for x, your sales price.
R = x – y (gross profit = sales – cost of goods sold)
The difference between gross profit and net profit is that, as shown above, gross is the sales minus only the costs of goods sold, whereas net is sales minus all your expenses including operational, administrative, etc. For example, if you make a product that costs you $50 in materials and you want to profit $35 per sale, you would price it at $85. This is a simplified version, but you should get the general idea. Another strategy you can use is to look to your competitors and see how they are pricing their products/services.
4. Explore Your Financing Options
Before cleaning out your wallet, you should look into the many forms of financing available. The top financing options to maintain a positive cash flow as a startup are the Business Development Bank of Canada (BDC), Futurepreneur, Canadian business grants, and crowdfunding. For a more in-depth list of financing options, click here.
Cash is King
If you would like to further educate yourself on smart decisions for how to make and keep cash in your business, instead of just “making a profit”, get our complimentary eBook here and learn 10 ways to increase your cash flow!
We can relate to how you’re feeling right now because we’ve been there and know what you’re going through. At UpSide, we are experienced accounting professionals. Although, our firm was at the startup phase not that long ago. We can relate to your highs and lows, and we want to take some of the pain away from the accounting side of your business. Our dedicated team at UpSide helps startups like yourself grow into successful creative professionals. If you’re interested to see what we can go for you, contact us.