26062023 Editorials STARTUPJARGONS06:
- What are the various factors that influence Cash flow
- How important is it to work on Cash flow
- How do you enhance Cash flow
- What are the benefits achieved by improving Cash flow
- What does Cash flow analysis suggest
STARTUPs in general think of how to procure funds and how best that can be utilised for reaching the targets in a given time span. This translates into the progress of the entity. Hope you all agree with me on this fundamental issue.
However, this is not as simple as said. There is a separate subject on this issue, known as Cash Flow Management. This signifies utilising the cash incoming into the company and the amount spent on different needs also known as Cash Outflow.
Basically, Cash Flow is of three types. They are Operating Cash Flow, Investing Cash Flow and Financing Cash Flow. These three together calculate how much cash flow has come inside and how much is spent.
Stalwarts believe that when the cash Inflow is more than the cash outflow, STARTUPs become Unicorns. As it is our sole ambition as a Founder is to steer our ship towards this destination. If you agree to this (you will definitely agree!) go on read this and the next article that discusses the ways we could control Cash Flow Management.
‘Define Cash flow: Cash Flow refers to the movement of money into and out of a business over a specific period of time. It represents the net amount of cash generated or consumed by a company’s operations, investments, and financing activities.
For a STARTUP, cash flow is a critical financial metric that reflects the availability of cash to fund daily operations, meet financial obligations, invest in growth opportunities, and maintain overall financial stability. Positive cash flow indicates that the company is generating more cash inflows than outflows, while negative cash flow suggests that more cash is being spent than received.
STARTUPs typically experience unique cash flow dynamics, especially in their early stages. Some key considerations regarding cash flow for STARTUPs include:
Cash Inflows: STARTUPs can receive cash from various sources, such as sales revenue, investments from equity investors or venture capitalists, loans, grants, or other forms of financing.
Cash Outflows: STARTUPs have various expenses and obligations, including operating costs (e.g., salaries, rent and utilities), marketing and advertising expenses, research and development costs, loan repayments, and taxes.
Burn Rate: The burn rate refers to the rate at which a STARTUP spends its available cash. It helps determine how long the company can sustain its operations before requiring additional funding. STARTUPs with high burn rates need to closely manage their cash flow and secure sufficient funding to support their growth.
Cash Flow Management: Effective cash flow management is crucial for startups to ensure they have enough cash on hand to meet their financial obligations. This involves monitoring cash inflows and outflows, projecting future cash flows, optimizing working capital, controlling expenses, and considering cash reserves for unexpected events.
Cash Flow Forecasting: STARTUPs should develop cash flow forecasts to estimate future cash inflows and outflows, helping them plan for potential shortfalls or surpluses. Cash flow forecasts can guide financial decision-making, aid in identifying the need for additional funding, and support strategic planning.
By monitoring and managing cash flow effectively, STARTUPs can maintain financial stability, make informed business decisions, and increase their chances of long-term success.’
‘For all those who are interested to know in detail about the financial terms used by your auditors, we decided to start a series on financial terminology education. OMG! That sounds a little complicated, let us simplify that as a series on STARTUP Jargon.
In this series, we shall give a rough meaning of the various words used in this area and ways to better the situation. However, we request each of you to consult your financial advisors before deciding your strategy.
Every setup has its own methodology of growth and no two organizations are similar. Ultimately it is every founder’s dream to turn into unicorns and the ecosystem wants to see more such enthusiastic achievers. So wishing you all the very best in your endeavour hope our today’s topic on CASH FLOW cleared your perplexity, at least to some extent, on the terminology.’
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