5 Ways to Ensure You Have Cash Flow When Starting a Business

The decision to transition from comfortable employment to starting a business can be both daunting and exciting for the entrepreneur. However, the reality is that 80% of startups fail within the first year, and many of these failures are typically caused by a lack of cash flow.

Ego can be a driving force for entrepreneurs, as it pushes them to strive for success and achieve their personal goals, however, it can also lead to financial pitfalls. Therefore, managing ego and short-term desires and their impacts on cash flow are crucial for the survival of a startup.

Cash flow is often referred to as the lifeblood of a business. Some say that the three main things in business are cash flow, cash flow and cash flow. Without cash flow, a business cannot continue its operations and meet its financial obligations.

To better understand the importance of cash flow, you only need to look at Maslow’s hierarchy of needs to see how it applies to the life of a startup.

1. Physiological needs
   The base of Maslow’s hierarchy consists of physiological needs, which include food, water, shelter, clothing, overall health and reproduction. In the context of a startup, these basic needs translate to the recurring bills that must be paid to keep the business running. Entrepreneurs should determine how much cash they need to cover these expenses each week or month to ensure the survival of their business.
2. Safety needs
   The second level of Maslow’s hierarchy involves safety needs. These needs include protection from violence and theft, emotional stability and well-being, health security and financial security. For a startup, maintaining financial security is crucial. Entrepreneurs must be vigilant in collecting unpaid accounts, as unpaid invoices can be considered a form of theft that threatens the company’s survival.
3. Love and belonging needs
   The third level of Maslow’s hierarchy addresses love and belonging needs, which involve human interaction and social connections. Entrepreneurs must develop strong relationships with customers, suppliers, and other stakeholders to ensure the success of their businesses. Joining business networks, clubs, or groups of like-minded individuals can help establish connections and foster a sense of belonging. You won’t be successful alone. You will need social skills such that a stranger will pay for your services. These strangers are usually called customers. The more the merrier.
4. Esteem needs
   The fourth level of Maslow’s hierarchy focuses on esteem needs, which involve self-respect and self-esteem. This self-esteem will enable them to demand timely payments from clients and maintain a healthy cash flow. Self-esteem and confidence in startup land are required so that while you may be living like a church mouse and can’t recall a holiday away, you know you are valuable and deserving of dignity. Tell them to pay their bills!
5. Self-actualisation needs
   The highest level of Maslow’s hierarchy is self-actualisation, which describes the fulfilment of one’s full potential. In the context of a startup, this means sticking to the company’s unique sales proposition and avoiding the temptation to diversify into unrelated activities or enterprises. Entrepreneurs must focus on what they are good at and not become distracted by other ventures.

The startup business plan should describe the business’s unique sales proposition, which in less fancy terms means to ‘stick to the knitting’. This simply means that a business should do what it is good at and not become distracted by diversifying into totally different activities or enterprises.

A cautionary tale of not sticking to one’s unique sales proposition can be found in Silicon Valley Bank, which did not have an official chief risk officer for eight months while the VC market was spiralling. This example perfectly demonstrates the importance of maintaining focus and doing what it is you do best.

Building a startup requires entrepreneurs to focus on the foundations of business, with cash flow being the most critical element. When in doubt, just remember those three words, “cash flow, cash flow, cash flow”.

Written by Alan Manly.

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