Entrepreneur Saija Mahon shares how your start-up can get to grips with cashflow

Early-stage businesses should focus on building rock-solid financial foundations, says the founder of Mahon Digital Marketing

Poor cashflow management is one of the primary reasons four out of five businesses fail in the first five years.

But why do start-ups struggle to stay on top of their finances? And what can you do to make sure financial woes don’t impact your business?

Saija Mahon – founder and managing director of Mahon Digital Marketing – spoke to us about business financial management, investment, and why a start-up’s primary focus should be getting a grip on cashflow.

Don’t forget to build rock-solid financial foundations

Those first years of setting up a business can be a whirlwind for first time entrepreneurs, with the excitement of securing customers and making sales matched by constant concerns over financial insecurity.

With so many different things to keep track of, it’s easy to forget to focus on some of the most important things – like building rock-solid financial foundations…

Mahon, who acts as a business mentor and conference speaker, explains why even good ideas can fail at the hands of poor cashflow management and why investment isn’t always the best option for start-ups:

“I see this lack of cash flow management all the time, where start-ups don’t focus on getting financially stable. Many get so excited about their new product or offering – which is obviously great – but then they get lost in the investor world and forget about their core customer who would buy their idea, product or service in the future.

“That pot of investor money is finite – ultimately you need customers to buy your products.

“One part of this, certainly from what I’ve seen, is that start-ups don’t focus on the customer enough, or building up their go-to-market strategy – they think that the investor will pay anyway.

“Yes, in the short-term, that works but not in the long-term if you want to be here in ten years’ time. You can’t just think that your investor will always be here, because they won’t.”

Investment cash doesn’t last forever

In your eagerness to fuel rapid growth, it’s easy to lose sight of day-to-day income in favour of the more exciting prospect of investment – but don’t forget: cashflow is the lifeblood of a healthy business.

And while a growth capital injection might give you a much-needed boost, that money is going to run out eventually, and you need to have a plan for when it does. Entrepreneurs need to be more aware and better educated about this issue so they can prepare.

Mahon says: “Start-ups tend to not think of the cash flow, and the customer base who will bring in that cash flow. They see cash as coming from the investor, and in the long-term, that’s wrong.

“There’s education needed in the start-up community on cash flow, for sure. I hope I can bring my thoughts forward, and I hope other business leaders will too, as there are so many start-ups that get caught up in these problems with cash flow.”

Learning from others

Starting a business can be a daunting experience, especially when faced alone. That’s why entrepreneurs should make use of business networks for support and encouragement. There are millions of others who have gone through, or are going through, the same trials and tribulations as you and can offer advice.

“Many start-ups do fail,” says Mahon, “The research shows this. But, you can learn from other people’s mistakes. Start-ups should look at how other start-ups survived the growth phase, rather than going through everything on their own.”

“I’m part of many groups and networks for entrepreneurs, and we exchange ideas and we share failures and mistakes etc. to make sure that if you’ve made a mistake, then I don’t have to make that same error. I can learn from you, or I can share a shortcut that you can utilise so we both succeed.

“Especially in the start-up world, it’s very important to have a mentor – someone who’s seen it, done it and can advise you, and not just give you money as an investor. If that money doesn’t come with support, mentoring or consultation, you can burn through that money very quickly.”

Want your business to grow? Think about cash flow

Rather than spending your energy chasing funding rounds when your short of cash, focus on getting paid on time first so you’re in a more stable position to search for finance.

Mahon explains how moving to direct debit can boost cash flow and reduce time-consuming admin of chasing up your late invoices:

“Automated cash collection with GoCardless removes the need for awkward conversations with customers, saves time and it obviously helps cash flow – that’s a huge thing! But it also means you can focus on growing the business and not spend time trying to get the money you’re owed.

“We invest in our growth, and obviously we need money coming in at a reasonable time to do that and to ensure that our three offices continue growing and I can continue paying salaries, hiring people and keeping jobs in the business. But it’s all tied in to cashflow, of course, and it takes a huge amount of stress away from the business owner.”

It’s time for a change in payment culture

For Mahon, improving payment culture doesn’t just help the start-ups at the end of the chain – everybody benefits from improved cashflow. She explains why it’s vital for more organisations and entrepreneurs to adopt automatic payments:

“Direct debit and automated cash collection is not yet the standard. But hopefully change is happening right now. As entrepreneurs, start-ups and businesses, we need to move onto this automated way of paying.

“That way everybody gets paid, everybody’s cashflow is better and everyone has more money available – because no-one is holding up that chain of money. If we all change to this seamless way of paying, the money will start flowing around a lot better!”

Prioritising cashflow management

If you’re just starting out on your business journey, you have the opportunity to implement a positive payment culture from the beginning.

Ensure you’re building a solid pipeline of sales, income and cash, and don’t start looking for investment until you’re in a strong financial position.

GoCardless gives start-ups and small businesses access to online direct debit. It’s free to set up and you pay just 1% per transaction with a cap of £2 (and no hidden charges). Find out more.