When you ask a founder what their biggest concern is, most of them will likely mention cashflow.
Many startups have folded in their early days because they’ve run out of cash. Without meticulously tracking your spend and income, you could be in danger of undoing all the great work you’ve done so far, including market validation, R&D, and investment.
Around a year ago, Jack Coleman, resident at GridAKL / John Lysaght and founder of Double Yolk, started up his own business. Along the way he’s learnt a lot about cash flow management, so here are his top pieces of advice to help you put your startup firmly on the path to success.
What’s your business and why did you decide to found your own business?
I run a business called Double Yolk. I have a team of 12 developers in India and we build applications, websites and interactive ad units for businesses in New Zealand and Australia.
Why is it important for startup founders to prioritise cash flow?
Cash is essentially oxygen for a business – without it, you can’t do much. Prioritisation is important as when you start (unless you have a large investor or savings) because cash is reasonably scarce. By prioritising you can ensure the cash is being allocated to things that drive value (ROI) to your business.
How do you decide what to prioritise what to spend money on?
Ideally, I aim to spend a dollar if I know it’s going to return me more than a dollar back. If it’s not, I gauge why I’m spending it and seek other alternatives that will give a positive return on investment.
We all know the best way to learn is through mistakes. Would you be able to share with us your biggest mistake with cashflow so far and what it taught you?
Paying too quickly. When I started off I wanted to clear supplier debts instantly – I hated having the debt hanging over me. The problem was my customers didn’t seem to suffer from the same anxiety and would pay me on their standard terms (normally the 20th day of the following month). This meant I had a positive cash conversion cycle, but while this may sound like a ‘positive’ it’s not. I’ve since learnt the importance of having a negative cash conversion cycle (i.e. getting revenue in before you need to pay your suppliers). Obviously, you don’t want to keep suppliers waiting but being clear on payment terms and requesting quick payment from customers is key.
Do you recommend any tools that help founders to manage their cash flow?
And finally, what would be your 3 top tips on cash flow and profitability to a founder just starting out?
- Require payment early (or upfront if you can, with a decent % as a deposit)
- Watch your fix costs. Try to make sure each dollar spent results in more than $1 back.
- Don’t be afraid to spend. Sometimes you need to break an egg to make an omelette but try use equity, not debt early on.
This blog post was written by Laura Briggs, part of the Community Team at GridAKL / John Lysaght. With a special contribution from and thanks to Jack Coleman.