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After analysing the causes of failure of start-ups across the world, the major cause of their failure has turned out to be improper cash flow management. This points to the fact that generating a healthy cash flow is essential for the survival of an early-age start-up which requires proper planning and a strong operational strategy. Conversely, inexperience in cash flow management can be fatal for the existence of a budding start-up.
This piece of writing discusses the meaning of cash flow and common cash flow mistakes that start-ups commit.
In simple words, cash flow is the amount of money that comes in and goes out of a business. It refers to the net balance of the incoming and outgoing cash in a business at a specific point in time. Cash flow can be both positive and negative. Positive cash flow means that a business has more money coming into the business than going out. Vice versa, negative cash flow means that a company has less money coming into the business than going out.
Following are the common mistakes that are committed by start-ups:
A lot has been discussed about the common cash flow mistakes committed by start-ups, but the list is not at all comprehensive. Some of the lesser known but common cash flow mistakes include ignoring to critically look at every expense made by the firm without questioning how that expense justifies itself, reliance on the bank balance to meet the cash flow needs, and not setting aside a contingency fund. To deal with such mistakes, solution of such these things should be properly integrated into their internal controls. Failure to manage cash flow can prove to be fatal not just for the growth but the survival of the business.
Read our Article: Cash Flow Forecasting in Financial Model
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