Aspiring to open your startup in Hong Kong? Here we are to help you throughout!
Every aspiring entrepreneur who is keen to start his business venture in Hong Kong must know that Hong Kong is considered to be a tax haven. This simply means they have very lenient tax policies for every business. Considering that, it becomes easy to conduct business operations there and gain profits.
However, there are also some strict regulations and legal norms imposed by the government of Hong Kong for business owners. Entrepreneurs must remember that they have to follow all the legal formalities and maintain the regulations of Hong Kong authorities if they wish to open their startup there.
One such necessity is managing the cash flow of the company. Here in this article, we will be discussing what are some tips to maintain or manage cash flow as a startup owner in Hong Kong. Let’s start learning from scratch and know what cash flow is.
What is cash flow?
To define cash flow in simple words, we can say that cash flow refers to the import and export of money from the business in exchange for goods and services provided by them. Cash that gets credited represents inflows whereas, debited cash represents outflows.
Cash flow is of three types:
- Operating cash flow: operational cash flow of any company showcases its daily financial activities such as income, taxes, interest payments, rent, outflow from salaries, and various other expenses. Such companies whose sales overshadowed their operational expenses are classified as cash flow positive
- Investing cash flow: cash flow gained through investment signifies long-term investment. At the beginning of any startup when the owner invests in the company the nature of the investment remains negative as it only outflows cash. However, when they earn inflows by selling the shares of the same company it eventually becomes positive cash flow.
- Financing cash flow: financing cash flow is a term used to represent the net cash that is linked with financial activities that mainly hold the company’s financial power. Many firms sell a part of their ownership to investors to generate money for expenses. Then many financial operations generate cash flow such as selling bonds, paying dividends, and receiving stock back from the investors.
Since we have learned enough regarding what cash flow is and its types, let’s move on to some effective tips for your business startup.
Tips to manage cash flow for business startups in Hong Kong
Starting a new venture in Hong Kong is indeed very exciting. However, it still brings various challenges along with it. One of the biggest challenges that every entrepreneur encounters is managing cash flow. In places like Hong Kong, where the expense of doing business is generally high, cash flow issues can quickly become a significant issue.
In this portion, we’ll see some tips and best practices that will help you manage your cash flow in Hong Kong.
Cash Flow Forecast
The foremost step in managing your cash flow is to construct a cash flow forecast. A cash flow forecast refers to an estimated value of future cash inflows and outflows of your company. It helps you in predicting any cash flow issues that may occur in the future. It also helps in planning resources to resolve such issues accordingly. A cash flow forecast must cover at least the next 12 month’s forecast, and the entrepreneur should update it regularly to assure its accuracy.
For creating a cash flow forecast, you will need an estimate of your company’s cash inflows and outflows. Remember that such cash inflows will include all the revenue from sales, investments, loans, and other sources. The cash outflows will also include expenses on rent, utilities, salaries, inventory, and additional costs.
Once you have an estimated figure of your cash inflows and outflows, you can then calculate your net cash flow for every month.
Remember that a positive net cash flow depicts more cash than spending, whereas, a negative net cash flow means that spending of cash is more than actual cash.
Monitor the Cash Flow
The next step after creating a cash flow forecast is to monitor the actual cash inflows and outflows of the company. This will help in identifying the discrepancies and taking adequate action before it gets too late.
To monitor the cash flow of the company, it is necessary to keep proper track of cash inflows and outflows regularly. This will also help in identifying any short-term cash flow issues and taking quick action to address such issues then and there.
For example, if you detect that your company’s cash inflows are less than expected in a month, you may require to take adequate steps to increase your revenue or decrease your expenses to dodge a negative net cash flow.
One of the promising ways to enhance a company’s cash flow is to manage its expenses sufficiently. Always keep an eye on the expenses and identify those areas which might be managed by cutting expenses. Always look for ways to reduce overheads, negotiate better deals with suppliers, and avoid unnecessary expenses.
For example, you could switch to a cheaper supplier for raw materials, reduce marketing expenses by focusing on low-cost mediums such as social media, or renegotiate rent to fetch a better deal.
By managing the expenses carefully, entrepreneurs can free up cash to invest in their businesses and improve their overall cash flow.
Late payments can be a significant issue for startups, especially in a region like Hong Kong where payment terms can be extended than in other countries. To avoid cash flow issues caused by late payments, it’s crucial to generate invoices quickly.
Send out invoices as soon as possible right after the work is completed, and follow up on any unpaid invoices. You can also use some software tools to automate this process which will save a lot of time.
Alternative Financing Options
If the company needs extra funds to grow then consider alternative financing options such as loans, crowdfunding, or venture capital. However, thoroughly read and understand the terms and conditions and all the clauses of any financing arrangement before signing on it.
For example, if you are applying for a loan, make sure you read and understand the interest rate, repayment terms, and any additional fees that may be involved in the process. If you are opting for venture capital, make sure you figure out the valuation of your business, the equity you will have to give up, and the anticipations of your investors.
By knowing these tips, aspiring entrepreneurs who are looking for the right way to start their startup while managing the cash flow can dodge many complications.
Managing cash flow is a critical aspect of running a successful startup in Hong Kong or any other location for that matter. By executing suitable techniques and adopting adequate practices, entrepreneurs can ensure the financial health and sustainability of their businesses. In this article, we analyzed several essential tips and advice for effectively handling cash flow in a Hong Kong startup. Whether you are a seasonal business owner or someone who is just starting, we hope this article has helped you in many ways to solve your queries regarding cash flow.
Article contributed by: https://startupregistry.hk