5 Reasons Why Founders Struggle With Cash Flow

Quite often, founders struggle with cash flow as a startup rapidly scales and accelerates. This can be an obstacle even when growth is a primary goal. But why does this actually happen? There are quite a few reasons that startups struggle to get off the ground. However, from inconsistent revenue streams to poor expense management, here are some reasons.

Rapid and Unmanaged Growth

Sometimes a startup can grow very quickly. Of course, growth is a goal, but it can be hard to handle when it happens rapidly. As such, losing sight of finances is a risk that comes with a fast-paced startup. A business plan can help you perceive some incoming issues, and registering for an LTD business account can help you manage the structure. This is a solid way to then scale operations, hire staff and purchase inventory that supports their growing business.

Inconsistent Revenue Streams

Revenue is everything when getting a business off the ground. Many companies, and startups especially, are held hostage by external factors such as seasonal sales and unpredictable cycles. As a result, maintaining a steady cash flow becomes something of a challenge. Without a consistent revenue stream(s), any business can experience a shortfall of income. As a result, covering operational costs such as office rent, salaries and suppliers becomes a challenge.

Founders Struggle With Cash Flow from Delayed Payment

It is well known that 90% of startups fail before the third year of business. There are many reasons this happens, but delayed payment is one of the least talked about but most impactful. When a company isn’t paid what it is owed, revenue streams dry up, and bills can’t be paid. That’s why investing in B2B payment automation software offers an excellent ROI. With well-managed receivables, you can expect timely invoicing and punctual collections processes.

Poor Expense Management

All businesses have expenses, and many can actually be written off on your annual tax returns. However, this can pose a massive threat to the cash flow of a company if it isn’t checked regularly. Expense control is therefore a major part of modern business if you want company finances to stay within reasonable limits. However, expenses can be offset with emergency cash that can cover unexpected equipment failure, which can be a challenge when cash is limited.

Ineffective Cash Flow Forecasting

Even from the very beginning (in your business plan), financial forecasting is a major part of getting a business off the ground. Inaccurate projections are a common mistake, especially when relying solely on bank balances or, worse, gut instinct. This can be the doom of a modern business, and you must make every effort to forecast cash flow. This helps the business anticipate incoming shortfalls, and decisions can be made based on expected income. 

Summary

Rapid and unmanaged growth can be a reason why founders struggle with cash flow for a startup. Delayed payments can also be the bane of a new business that relies on steady income. Of course, inaccurate cash flow forecasting can lead to shortfalls in income.