By Trina Painter, Shareholder
Entrepreneurs are true leaders who actively help move new technologies to market, serving a valuable role in our economy and the overall progress of our society. But for any entrepreneur to thrive in the competitive technology space, it is imperative to have a healthy cash flow that supports revenue growth. What does that really mean and what steps should you take? Working closely with technology companies that are cash flow generators, I have found certain practices help with development and prosperity. Let’s get started.
The tactics detailed below are meant to get you started and is by no means a definitive list.
1. Adopt a cash flow analysis routine
This means creating a repeatable process to routinely look at your company’s cash inflows and cash outflows. It should include a snapshot of upcoming amounts to be paid to your employees, vendors and lenders, cash inflows from collection of receivables and other services, and your cash available. Entrepreneurs who make it a point to analyze their company’s cash flow—if not daily, at least once a week—know their financial situation at any given time.
2. Anticipate and forecast cash flow needs
Business planning, both short- and long-term, helps you better anticipate and forecast cash flow needs.
Short-term planning ensures cash flow to run your business on a daily basis, while also continuing to grow and expand. It addresses cash outflows like payroll, product development, investment in new markets and customers, etc.
Long-term planning gives you an idea of cash flow required to meet forecasted targets, i.e. where you want to be five years out in relation to the competition and other economic conditions. It is also important to have a contingency plan to cover unforeseen situations that could potentially impact cash flow, including actions to take in the event of insufficient cash flow, if things don’t go the way you expected. Anticipating “what if” scenarios is a critical exercise to avoid any surprises.
3. Have a strong CFO or controller on staff to help manage cash flow
Having a dedicated finance executive working for your company can provide professional insights into cash flow management processes and also risk mitigation. One key responsibility of a CFO or controller is to understand when cash is coming in or going out. He/she may also play a role with your sales team to help maximize their efforts and plan for cash flows generated from sales. Such collaboration contributes to having top-performing sales and finance teams that are knowledgeable of and aligned with “big picture” business goals.
4. Develop relationships with tech-savvy banks and private equity groups
Unless you have your own unlimited funds, there will come a time when more cash is needed to fuel growth—whether you want to fund research and development, hire additional people or expand into new markets. There are particular sources of money that understand technology companies and are known to invest in emerging products and solutions. Establishing relationships now will allow you to save time and energy in the future.
5. Collect receivables as quickly as possible
By routinely monitoring your cash flow, you will be able to immediately spot if a customer is not paying in a timely manner. It could be a one-time occurrence, or it might signal that there is an underlying issue with the service delivery, the product or the overall contractual arrangement. Regardless, such lateness should be addressed sooner rather than later. Pick up the phone and simply ask what’s going on; it is vital to getting the cash in the door.
Technology is an exciting arena to be working in and to invest in with innovative products and ideas being brought to market every day. As a CPA, I enjoy helping entrepreneurial companies throughout their lifecycle, from start up, to getting that first private equity deal, to remaining competitive over the long run. In all of these stages, a healthy cash flow is the one constant for optimizing company value.
Contact me at to discuss how Weinstein Spira can help your company thrive.
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