How to adopt an effective cash management strategy for your startup

Cash is the lifeblood of your business, making proactive cash management critical. A sound strategy helps protect and grow your capital, especially during economic uncertainties.

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Let's look at some key considerations for cash management:

1. Liquidity

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Ensuring you can access funds quickly to meet short-term obligations is essential for smooth operations and handling unexpected expenses.

• Use tools like Round Treasury for efficient liquidity management.
• These platforms offer easy access to funds and helpful financial insights.
• Regularly forecast your financials to determine necessary capital over time and avoid cash shortfalls.

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2. Risk

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Balancing the need to fund operations with earning returns on excess cash while minimising risks ensures financial stability.

• Utilise insured accounts and diversify your funds to mitigate risks.
• Consider tools like Round Vault, which allows you to spread deposits across multiple accounts to maximise FSCS protection, ensuring your cash is safe even if a bank fails.

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3. Yield

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Maximising returns on idle cash without taking on excessive risk helps increase your capital reserves.

• Invest in short-term, low-risk securities or money market funds to earn interest on surplus cash.
• Platforms like Round are tailored to startups, balancing growth with risk management.

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4. Cash Management Strategies

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Here are some cash management strategies you can take —

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Maintain Accessible Operating Funds

Calculate and set aside six months of operating expenses in easily accessible accounts. This ensures you can cover all necessary costs even during lean periods.

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Tools: Budgeting tools like FreeAgent help you track expenses, forecast future financial needs, and maintain a clear view of your cash flow.

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Utilise Multiple Accounts

Open separate accounts for different purposes (e.g., operational costs, payroll, taxes) to streamline cash management and avoid mingling funds.

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Tools: Banks like Revolut or Airwallex offer the ability to create sub-accounts, making it easier to manage and allocate funds for various business needs.‍

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Automate Treasury Management

Use automated treasury solutions to manage investments and optimise cash flow without manual intervention.

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Tools: Platforms like Round Treasury provide comprehensive treasury management services, helping you maximise returns on idle cash while maintaining liquidity.

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Avoid High-Risk Investments

Stick to safer investment vehicles and avoid high-risk options like cryptocurrencies. This conserves your capital and protects against significant losses.

Invest in stable, low-risk funds that offer modest returns without exposing your startup to unnecessary risks.

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5. Practical Tips for UK Startups

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Choose Scalable Financial Tools

• Automation: Select tools that automate repetitive tasks and integrate seamlessly with your accounting software. Tools like Xero and QuickBooks UK are excellent for financial tracking and scalability.
• Scalability: Ensure the tools you choose can grow with your business, preventing the need for frequent changes

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Establish Strong Financial Controls

• ‍Controls: Develop robust policies for managing expenses and investments, ensuring transparency and accountability across your organisation.‍
• Policies: Set clear guidelines for expense approvals, spending limits, and financial reporting to maintain control over your finances.

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Educate Your Team‍

• Education: Train your employees on financial protocols to enhance financial hygiene and prevent errors. This ensures everyone understands their roles in the financial processes.‍
• Responsibility: Make sure your team is aware of their responsibilities in expense reporting and budget management.

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Maintain Accurate Records‍

• ‍Organisation: Keep detailed and organised financial records using digital tools like Dext for expense management and document storage.‍
• Consistency: Regularly update and review records to ensure accuracy and completeness, making audits and financial reviews more manageable.

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Setting a Strong Financial Foundation

• Start with clear, scalable financial processes to prevent future complications. Treat financial setup like technical debt; doing it right initially prevents future issues.‍
• Foundation: Create a strong financial foundation by implementing robust processes and tools early on. This proactive approach ensures smoother scaling and fewer issues down the line.‍
• Continuous Improvement: Regularly review and refine your financial workflows to adapt to changing business needs and market conditions.

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By focusing on essential financial operations, strategically outsourcing, and implementing efficient workflows, UK startup founders can ensure a resilient and scalable financial foundation for their businesses.

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Disclaimer

This article is for informational purposes only and does not constitute financial guidance.

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