For startups, cash flow is more important than profit.

Without a steady cash flow, startups can easily run out of cash, leading to bankruptcy, despite the potential for future profits.

Financially savvy people know that, in a business, cash flow is considered a more important factor than profit. Because profit is calculated based on the principle of accrual accounting, it can include revenues that have not yet been received, or expenses that have not yet been paid. In contrast, cash flow reflects the financial reality of the company, indicating exactly how much money the company has on hand ready to use.

In the early stages of a startup, companies often face many financial challenges, with many expenses for operations, product development, marketing, and talent acquisition. Without a steady cash flow, a company can easily fall into a cash crunch, leading to the risk of bankruptcy, despite the potential for future profits.

On the contrary, even if they have not yet generated profits, if they have a stable and positive cash flow, startups are fully qualified to develop better products, expand the market, and flexibly seize opportunities.

To maintain a stable cash flow, the first thing a start-up needs to do is to create a detailed cash flow plan. Accordingly, it is necessary to forecast monthly and quarterly cash flow, including expected revenue and expenses. This helps businesses predict periods of possible financial difficulties and prepare timely response measures. The cash flow plan also needs to be updated regularly to accurately reflect the business situation and promptly adjust when there are fluctuations.

Second, cost control is an important factor in maintaining cash flow. Start-ups need to evaluate and cut unnecessary expenses, focusing on high-value expenses. For example, instead of renting a large office, start-ups can choose to work remotely or share workspaces with other businesses. Controlling fixed and variable costs will help maintain a reasonable level of cash reserves.

Third, effective management of receivables and payables is also a key factor in cash flow. Businesses need to establish clear payment policies with customers, ensure timely collection and limit bad debts. At the same time, companies need to take advantage of flexible payment terms with suppliers to extend payment time without affecting business relationships.

Finally, seeking investment capital is an important way to maintain cash flow. Startups can turn to venture capital funds, angel investors, or crowdfunding. However, care must be taken in choosing investment partners to avoid losing control and protect the company's interests.

Source: https://baodautu.vn/voi-start-up-dong-tien-quan-trong-hon-loi-nhuan-d217960.html