08.06.2014: Process Tips
#2 Understand your seasonal cashflow
Another cautionary tip for young start-ups is to understand seasonal cashflow. One acquaintance, for example, has major seasonal spikes that occur during tax season, followed by a slowing of conversions from April to October. It wasn't an easy lesson to learn, but they eventually realised that he needed to maintain a three- to four-month cash cushion to help get the company through these slower periods.
You need to know your sales cycles as well. If you're a business-to-consumer retailer that sells £20 items, your sales cycle is likely to be fast enough that having a cash buffer on hand is less of a concern.
But if you're a business-to-business company whose sales cycles last months, or even years, having extra capital in the bank can mean the difference between being able to weather the long periods before revenue from past sales manifests and having to fold early because your cash has dried up.