Risks in Managing cash flow manually and how to overcome it
Managing a startup's cash flow manually can be time-consuming and error-prone. It involves keeping track of all incoming and outgoing financial transactions, including revenues, expenses, loans, and investments. This can be especially challenging for a growing startup with many transactions and limited financial resources.
One risk of managing cash flow manually is that it can take time to get a complete and accurate picture of the company's financial situation. This can lead to problems such as overspending, missing opportunities to negotiate better terms with vendors or customers, or needing to prepare for unexpected expenses.
Another risk is that manual cash flow management can be prone to errors, such as calculating or recording transactions. These errors can lead to incorrect cash flow projections, seriously affecting the startup's financial health.
There are several steps you can take to prevent the risks associated with manually managing cash flow:
Use automated software: Automated cash flow management software can help reduce the risk of errors and provide a more accurate and efficient way to manage cash flow.
Review and reconcile regularly: Regularly reviewing and reconciling cash flow statements can help catch any errors or discrepancies and ensure that the financial records are accurate.
Keep accurate and complete records: Ensuring that all financial records are accurate and up-to-date can help prevent errors and ensure that the cash flow forecast is as accurate as possible.
Monitor cash flow regularly: Monitoring cash flow can help identify potential problems or opportunities and allow for timely decision-making.
Seek professional advice: If you are unsure how to manage cash flow or have concerns about potential risks, seek professional advice from an accountant or financial advisor.
As a startup, using tools is the best way to achieve a healthy cash flow. At Bursement, we believe that less is more. In fact, we believe in using only one tool to manage all expenses to achieve a real-time cash-flow overview. We call it cross-functional-expensing.
But you may feel you want to try other things, so we put down a list to help you navigate this landscape.
Spreadsheets: Spreadsheets, such as Microsoft Excel, can create a cash flow forecast and track actual cash flow, though you do need to feed it manually, which takes time.
Cash flow management software: Various specialized programs are available, such as QuickBooks and Xero, which can help automate cash flow forecasting and tracking.
Project management software: Project management software, such as Asana and Trello, can be used to track project budgets and expenses, which can help with cash flow management.
Invoicing and payment software: Invoicing and payment software, such as FreshBooks and PayPal, can help automate the process of sending invoices and tracking payments, which can improve cash flow management.
Bank and financial institution tools: Many banks and financial institutions offer online tools and apps to help with cash flow management, such as tracking expenses and creating budgets.
Bursement: consolidate all expense operations into one tool with a powerful real-time cash management dashboard to help you one step ahead.
Choosing the right tool for your specific needs and startup is important. However, having too many tools can be problematic for several reasons and is something you should consider before putting together your Finance operations. Here are some of the outcomes your startup can face with multiple tools:
Complexity: Using multiple tools can make it more complex to manage cash flow, as you may need to switch between different platforms or systems. This can increase the risk of errors and make it more time-consuming to manage cash flow.
Cost: Using multiple tools can be more expensive, as you may need to pay for multiple subscriptions or licenses. Research in Bursement found that businesses pay 160% more on subscription fees by choosing to manage their expense operations with 2-3 tools.
Integration issues: If the tools you use are poorly integrated, it can be difficult to transfer data between them and get a cohesive view of your cash flow.
Training and onboarding: If you constantly introduce new tools, it can be difficult for team members to get up to speed and be productive.
In general, it's important to find the right balance and only use the tools necessary to manage cash flow effectively. Using too many tools can create unnecessary complexity and cost.
If you do end up with too many tools (instead of choosing Bursement 🫢), here are several steps you can take to mitigate the risk of using too many tools:
Evaluate your needs: Take the time to assess your needs and determine which tools are necessary to manage cash flow effectively. Only use the tools you need.
Choose well-integrated tools: Look for well-integrated tools that can work together seamlessly. This can help reduce complexity and improve efficiency.
Train your team: Make sure that your team is trained and proficient in using the tools you have chosen. This can help reduce the risk of errors and improve productivity.
Review and reassess regularly: Regularly review your toolset and assess whether your tools are still the best fit for your needs. Don't be afraid to make changes if necessary.
Consider a unified platform: Instead of using multiple tools, consider using a unified platform that can handle all aspects of cash flow management in one place (e.g., Bursement). This can reduce complexity and improve efficiency.
Key Takeaways
Overall, managing a startup's cash flow manually can be a challenging and risky task. It may be more effective to use financial management software or seek the advice of a financial professional to help manage the company's cash flow.
Manually managing cash flow can be risky and prone to errors. Using automated software and keeping accurate and complete records can help mitigate these risks. However, too many tools can also create problems such as complexity, cost, integration issues, and training and onboarding challenges. To mitigate the risk of using too many tools, it's important to evaluate your needs, choose well-integrated tools, train your team, review and reassess regularly, and consider a cross-functional-expensing tool such as Bursement (I know, a shameless promotion 🫣).