Experts agree that a recession in the United States and Europe is likely just on the horizon. Recessions can be stressful and uncertain for even the most robust businesses - to say nothing of how difficult they can make things for younger and smaller startups.
Thankfully, the situation is likely not as dire as you might be fearing. One of the best ways to remain stable and move forward for any business is to track cash flow carefully. Therefore, it's doubly important to do so with a recession potentially right around the corner. Doing so isn't necessarily difficult, but it does require you to keep several essential things in mind along the way.
Startup Cashflow Tips for a Recession: Breaking Things Down
The most crucial cash flow tip you can use to stay afloat during a recession is keeping a watchful eye on any and all spending. This means understanding where money is going and what you're getting in return.
Any seasoned entrepreneur can tell you that the early days of any business are costly. You have to invest in equipment and other assets. You'll be onboarding team members to help move your vision forward. You'll likely be investing in marketing campaigns to raise brand awareness. The list goes on and on.
But you also need to ensure an actual return for that spending. Take marketing, for example - do your research and identify those activities that historically have yielded the highest ROI. You can always ramp up and explore other opportunities later, but at least initially, you want to focus on getting something for every dollar you spend.
Another tip you can put to good use involves making sure that you're tracking the right key performance indicators over time. Don't just let your cash flow statement be your "be all, end all" source of truth for your funds. It would help if you also looked at metrics like operating cash flow, for example, the total money your company is generating through its regular activities.
You'll want to pay attention to working capital, the money you have on hand that will allow you to continue running the business. This is especially crucial to watch during a recession, as conditions can change rapidly, and you'll have to adapt in kind quickly.
Finally, the most critical step to preserving cash flow during a recession involves creating and sticking to an ideal budget. Naturally, that budget will vary depending on the type of business you're running or even the industry in which you're operating. But it would be best if you still put the work in because it will help you control your spending, unlock insights into where your money is going, and help outline areas where you can improve certain financial activities.
Not only will this help you navigate the potentially rough waters of a recession, but it is also essential for long-term business growth. But remember that this is not something you "do once and forget about." Every few months, you need to return to that budget and A) see what you can learn from how well you stuck to it and B) see what needs to be updated to keep in line with current expectations. Remember to consider the importance of a step such as this one.
In the end, something as crucial as cash flow is never an element of your operations that you want to leave to chance - especially when you're talking about the precarious early days of a startup. You need access to all the funds you can get to put it to good use, and you can only do that if you have complete visibility over money coming into and going out of your enterprise.
If this is too difficult for you to handle on your own, feel free to enlist the help of a trained professional. At the very least, they'll be able to take one more thing off your plate, freeing up your valuable time to focus on those urgent matters that need your attention.
Contact us today if you'd like to find out more information about best practices that you can use to keep your startup afloat during a recession.