News 13th April 2021

Gearing up for success…

but “where’s my cash gone?”

Have you recently thought about starting a new business? You have your big idea; you have researched your customer base and have designed your new product or service for sure success – but have you accurately calculated the cash required to set up your new venture? Could you cover any unforeseen costs and payment delays while you are busily establishing your new venture?

For many new businesses, starting up is not as simple as walking into a new shopfront or office and switching on the lights. More often than not it will involve delays, downtime, and unforeseen setup costs. On top of all this, lack of business experience can lead to higher-than-normal write-offs and stock wastages.

A friend of mine once opened a little cake shop. She thought she was ready to roll from day one, only to discover she needed a new fit out and some expensive new equipment as the leased premises were not set up for food manufacturing. She required a phoneline upgrade for EFTPOS, new ovens for baking and new cabinetry. On top of this her marketing costs soon sapped through all her start-up capital. While she was busily handling her frustrating Internet provider and oven installation delays, her cash reserves were running on empty. All before anyone got a chance to taste her delicious cakes!

A staggering 9 out of 10 new startups fail within the first 12 months, and 82% of these failures are attributable to cashflow management. But it is not all doom and gloom. Limited cash supply can also stimulate creativity and support positive spending habits.

Uncertainties are, by definition, unknown. Not every start up expense can be foreknown, however there are still ways that small businesses can get on top of their cash flow early on. The following boot strap business strategies can assist new entrepreneurs to reach their goals sooner.

Preparing a cashflow budget

The preparation of a ‘cash map’ or ‘cash budget’ can assist to visualise the inflows and outgoings of your business cash. Determining the amount and the timing of a firm’s cash receipts and cash disbursements over its initial start-up phase, is important for setting cashflow priorities and determining the ending cash balance. Mapping out anticipated cash transactions on a monthly, weekly, or even daily basis may be initially required to ensure the timing of cash outflows can be met sufficiently.

In addition, preparing for the worst-case scenario is often the least desirable but most prudential strategy. What if your initial sales are lower than expected, what if the bank changes its mind on providing seed finance? All things must be considered in cashflow planning even if it is not looking pretty. We recommend taking a step back and looking at the business venture as if it were not your own, taking away emotions from the situation. Do you truly believe in the viability of this business? Do you see how you can get out if need be without losing too much of your investment? Sometimes a clear exit strategy is required to minimise any damage to your other investments.

Check out your cash burn-rate

The burn rate is the time it takes to burn through the capital contributions of a business. A new company with $100,000 initial capital, spending $15,000 per month on operating and setup costs will deplete its cash reserves in just over 6 months’ time. That is fast! Often business owners will factor in only the bare minimum cash outflows when deliberating a business’s viability. This is incorrect as this does not provide for the owner’s personal needs. New owners need to take an open and frank self-reflecting moment – what minimum cash drawing can I realistically live on and for how long, and then what are my current spending habits? Personal reflection is the beginning of sensible cash flow management.

Secondly, if is just as important for new business owners to conservatively evaluate their revenue expectations – the amount, growth, and timing of cash inflows. Questions need to be asked before beginning a startup, such as, where is my revenue coming from? Are there natural delays between your investment in works-in-progress and sale income cash inflow? What happens if my anticipated initial cashflows are delayed or non-eventuating?


Sometimes you need to think outside the box to get your business up and running. Think synergies, partnerships, collaborations, complimentary products and/or services. Positive cashflow is often dependent on our creative efforts rather than our logical processes or emotions. Finding new ways to generate income using the same startup equipment, adding new services or products for low cost, or sharing resources with others can reduce business startup costs and assist to generate positive cashflow sooner. Can you utilise a shared office facility or do you really need that office with the large boardroom all to yourself? Can you sell your product out of another business’s shopfront on a commission basis? Is there another company which could do with your service offering in its business? Is there a way to generate additional exposure or foot traffic, or provide your service out-of-house? As Albert Einstein once stated, “creativity is intelligence having fun”, so too can setting up a new business.

At Venture Private Advisory, we hope to assist you with your new business. We can advise you on the most suitable taxation structure, set up appropriate accounting software for record keeping and create cashflow management solutions to meet your individual business needs. Call our office to book a meeting on 08 7078 3505.

By Jonathan Roberts, Accountant, Venture Private Advisory.