Should Startups Focus On Cash Flow Or Raising Capital?

If you’re a small business owner or startup founder, you’ve probably been told that the key to success is “raising capital.” And while there’s no doubt that having a healthy cash flow is important, there are also times when it’s better to focus on generating revenue and profits instead of chasing after investors.

What is Cash Flow and Why Does it Matter?

Cash flow is simply the movement of money in and out of your business. It’s important to track because it gives you a good idea of whether or not your business is actually generating revenue.

A lot of businesses focus on raising capital instead of cash flow, but this can be a mistake. Here are some important points to note:

1. Capital doesn’t always equal cash flow. Just because you have a lot of capital doesn’t mean that you have positive cash flow. In fact, most startups burn through a lot of capital before they ever start generating positive cash flow.

2. You can’t keep raising capital forever. Eventually, you’re going to have to start generating positive cash flow in order to sustain your business. If you don’t, then your business will eventually run out of money and fold.

3. Positive cash flow enables you to grow your business. If you’re not generating positive cash flow, then you’re not going to be able to reinvest in your business and grow it over time. This is why focusing on cash flow is so important for long-term success.

How To Improve Your Company’s Cash Flow

A steady stream of consistent cash flow is what allows your business to survive. To ensure your business continues to thrive–without borrowing money or taking on investors–practice better cash flow management, starting with the tips below.

• Lease instead of buying
• Offer discounts to customers who pay early
• Negotiate better terms with your vendors
• Extend payables as long as possible and spread your payments
• Consider using a business credit card to pay for everyday expenses to free up cash.

Cash Flow Vs. Raising Capital

There’s no doubt that having a healthy cash flow is important for any business — but there are also times when it’s better to focus on generating revenue and profits.

In a perfect world, you’d have the ability to do both: you could chase after investors while simultaneously generating all the cash required to grow and scale your business. Unfortunately, it doesn’t work that way.

So how do you know when to make the switch? If any of the following apply to your business, it might be time to focus on cash flow instead of raising capital: 1) You’re not generating enough revenue; 2) Your burn rate is too high; 3) You’re not profitable yet. Keep these things in mind and you’ll be able to make the decision that’s best for your startup. Contact Punch for a concrete strategy to help you win at both.