cash flow product launch

Nov 2020

Manage Your New Product Cash Flow Challenges

Beginners Guide to Cash Flow Challenges and How to Overcome Them When Launching a New Product

You have a great idea for a new product. Do you have enough cash flow to support it?

Yes, it’s challenging to keep adequate working capital on hand. Fluctuations in cash can jolt even the more experienced organizations. So if you plan to launch a new product, then first study its impact on your budget. 

You will need this analysis to gain business insight to maintain the business’s financial health. It will help the company determine if there is enough cash flow to cover the new product’s cost. If the costs projections exceed current capital reserves, owners must acquire new cash sources. 

Read on to learn everything you need to cover the basics.
First, we list the main cash flow issues you can expect. Next, we review ideas for securing additional capital when you need it most. 

Beginners Guide to Cash Flow Challenges and How to Overcome Them When Launching a New Product

You have a great idea for a new product. Do you have enough cash flow to support it?

Yes, it’s challenging to keep adequate working capital on hand. Fluctuations in cash can jolt even the more experienced organizations. So if you plan to launch a new product, then first study its impact on your budget. 

You will need this analysis to gain business insight to maintain the business’s financial health. It will help the company determine if there is enough cash flow to cover the new product’s cost. If the costs projections exceed current capital reserves, owners must acquire new cash sources. 

Read on to learn everything you need to cover the basics.
First, we list the main cash flow issues you can expect. Next, we review ideas for securing additional capital when you need it most. 

Common Cashflow Problems

In a recent report by QuickBooks, 66% of business owners reported struggling with cash flow over the last year. So if you are experiencing a budget crunch, you’re not alone. Let’s look at 3 of the most common cash flow issues businesses face.

Challenge #1: Payout Delays

The delay between “getting paid” and having money finally hit a small business’s bank account can be an agonizing wait.

This is due to the time lag between paying your manufacturer and receiving customer payments. Manufacturers will require you to pay them before they ship out any product. Yet, most retailers won’t pay you for 30 to 90 days after they receive your product.

Challenge #2: Inventory Demand Exceeds Current Budget

When launching a new product, a primary goal should be high volume sales. But sometimes, there isn’t a budget to stock sufficient inventory. This means supply can’t keep up with demand. That can have a more significant impact than expected. 

The damage from a stockout is always bad. Customers will quickly move on to buy from your competitors. Even worse, it can cause brand loyalty and reputation is damaged. 

Challenge #3: Hitting MOQ Levels for Higher ROI

Getting a fully functional, realistic prototype is a huge accomplishment. But, your product is still a long way from being ready for market. Making a few prototype units is different from producing thousands or millions of units.

The MOQ is the minimum order quantity. This is the smallest number of units a supplier will make for you. This number ensures the production cost gets covered. Negotiating for lower quantities is a tactic that rarely ends well. 

Furthermore, most manufacturers give a price per unit discount to high volume buyers. Their discount models give these buyers a competitive advantage that others will never receive. And this is one more reason why your amount of liquid capital may mean success or failure. 

Knowing what to expect is only half the battle. Now let’s review how to overcome these challenges. 

Solutions to Meet Cash Flow Demands

Rather than waiting for larger savings, competitive organizations tend to seek outside investment. 

An external capital source has its appeal. It will allow you to get your project off the ground. It’s the financial bridge to your expansion goals. 

Projecting Cash Flow for a New Product

You have a great idea for a new product. Do you have enough cash flow to support it?

Yes, it’s challenging to keep adequate working capital on hand. Fluctuations in cash can jolt even the more experienced organizations. So if you plan to launch a new product, then first study its impact on your budget. 

You will need this analysis to gain business insight to maintain the business’s financial health. It will help the company determine if there is enough cash flow to cover the new product’s cost. If the costs projections exceed current capital reserves, owners must acquire new cash sources.

Common Cashflow Problems

In a recent report by QuickBooks, 66% of business owners reported struggling with cash flow over the last year. So if you are experiencing a budget crunch, you’re not alone. Let’s look at some of the most common cash flow issues businesses face.

Challenge #1: Payout Delays

The delay between “getting paid” and having money finally hit a small business’s bank account can be an agonizing wait.

This is due to the time lag between paying your manufacturer and receiving customer payments. Manufacturers will require you to pay them before they ship out any product. Yet, most retailers won’t pay you for 30 to 90 days after they receive your product.

Challenge #2: Inventory Demand Exceeds Current Budget

When launching a new product, a primary goal should be high volume sales. But sometimes, there isn’t a budget to stock sufficient inventory. This means supply can’t keep up with demand. That can have a more significant impact than expected. 

The damage from a stockout is always bad. Customers will quickly move on to buy from your competitors. Even worse, it can cause brand loyalty and reputation is damaged. 

Challenge #3: Hitting MOQ Levels for Higher ROI

Getting a fully functional, realistic prototype is a huge accomplishment. But, your product is still a long way from being ready for market. Making a few prototype units is different from producing thousands or millions of units.

The MOQ is the minimum order quantity. This is the smallest number of units a supplier will make for you. This number ensures the production cost gets covered. Negotiating for lower quantities is a tactic that rarely ends well. 

Furthermore, most manufacturers give a price per unit discount to high volume buyers. Their discount models give these buyers a competitive advantage that others will never receive. And this is one more reason why your amount of liquid capital may mean success or failure. 

Knowing what to expect is only half the battle. Now let’s review how to overcome these challenges. 

Solutions to Meet Cash Flow Demands

Rather than waiting for larger savings, competitive organizations tend to seek outside investment. 

An external capital source has its appeal. It will allow you to get your project off the ground. It’s the financial bridge to your expansion goals. 

Solution # 1: Traditional Bank Loan for Small Businesses

A small business loan is a common funding method for 2 reasons. Normally, the bank is not seeking high returns on its investment. Nor does it ask for partial ownership of your business.

For unsecured loans, the bank’s concern focuses on your ability to pay them back. For this reason, this option can be unrealistic. Many new and small businesses have no collateral to offset loan risk.

Solution # 1: Traditional Bank Loan for Small Businesses

A small business loan is a common funding method for 2 reasons. Normally, the bank is not seeking high returns on its investment. Nor does it ask for partial ownership of your business.

For unsecured loans, the bank’s concern focuses on your ability to pay them back. For this reason, this option can be unrealistic. Many new and small businesses have no collateral to offset loan risk.

Works Best

  • Excellent credit rating
  • Documented history of running a profitable business
  • A strong business offering that has proven results

Unsuitable

  • Poor or no credit history
  • Those needing flexibility in repayment terms
  • Any untested or new product launch

Works Best

  • Excellent credit rating
  • Documented history of running a profitable business
  • A strong business offering that has proven results

Unsuitable

  • Poor or no credit history
  • Those needing flexibility in repayment terms
  • Any untested or new product launch

Solution # 2: Crowdfunding

Crowdfunding is now a popular and accessible form of funding. Several platforms enable funding through donations, loans, or equity campaigns.

Crowdfunding can be extremely successful if you have a strong offer that will appeal to the public, along with a strong social media marketing campaigns. However, for every success, the vast majority do not secure their fundraising targets.


Solution # 2: Crowdfunding

Crowdfunding is now a popular and accessible form of funding. Several platforms enable funding through donations, loans, or equity campaigns.

Crowdfunding can be extremely successful if you have a strong offer that will appeal to the public, along with a strong social media marketing campaigns. However, for every success, the vast majority do not secure their fundraising targets.

Works Best

    • Strong online social media presence
    • Comfortable with a wide variety of funders, backers
    • Clear purpose resonating with a broad sector of the public

Unsuitable

  • A specific purpose that is not broadly understood by the public
  • Weak or average online presence
  • Those who need advice and guidance from their investors

Works Best

    • Strong online social media presence
    • Comfortable with a wide variety of funders, backers
    • Clear purpose resonating with a broad sector of the public

Unsuitable

  • A specific purpose that is not broadly understood by the public
  • Weak or average online presence
  • Those who need advice and guidance from their investors

Solution #3: Financing with Friends and Family

Family and friends are frequently the first people approached when starting a business. They know you and may well have had input into the project or business’s concept and ideation phase.

When borrowing from this group, it is important to treat their money equally as any other avenue. Establish whether it’s a loan or if they will take shares in the company. Are they partners, funders, or owners? Agree to set a loan interest rate. Most importantly, follow a regular payment schedule.

The most common mistake is to underestimate the impact of not repaying. It’s much better to make a compensation plan before accepting any cash. Discuss and agree on key items like interest rate, payment schedule, number of shares, or a percentage of profits. Both parties should give careful consideration to the impact these decisions have. 

Solution #3: Financing with Friends and Family

Family and friends are frequently the first people approached when starting a business. They know you and may well have had input into the project or business’s concept and ideation phase.

When borrowing from this group, it is important to treat their money equally as any other avenue. Establish whether it’s a loan or if they will take shares in the company. Are they partners, funders, or owners? Agree to set a loan interest rate. Most importantly, follow a regular payment schedule.

The most common mistake is to underestimate the impact of not repaying. It’s much better to make a compensation plan before accepting any cash. Discuss and agree on key items like interest rate, payment schedule, number of shares, or a percentage of profits. Both parties should give careful consideration to the impact these decisions have. 

Works Best 

    • A strong network of people willing to lend
    • Small investment required
    • Risk appears low

Unsuitable

  • A small or unstable network of family/friends
  • Large investment required
  • High risk with inconsistent cash flow forecasts 

Works Best 

    • A strong network of people willing to lend
    • Small investment required
    • Risk appears low

Unsuitable

  • A small or unstable network of family/friends
  • Large investment required
  • High risk with inconsistent cash flow forecasts 

Solution # 4: Venture Capital

Venture capitalists are investors who want to use money and expertise to get sizeable returns. The risk for them is high, and so their demands are too. 

For some businesses, working with a VC leads to huge benefits. For the best partnerships, their connections and knowledge rapidly increase growth. Venture capitalists achieve this in ways founders can’t. 

If you choose this route, prepare for brutal feedback. Presenting to venture capitalists is not easy. Also, know that interested VCs expect equity and control over critical business decisions. 

Solution # 4: Venture Capital

Venture capitalists are investors who want to use money and expertise to get sizeable returns. The risk for them is high, and so their demands are too. 

For some businesses, working with a VC leads to huge benefits. For the best partnerships, their connections and knowledge rapidly increase growth. Venture capitalists achieve this in ways founders can’t. 

If you choose this route, prepare for brutal feedback. Presenting to venture capitalists is not easy. Also, know that interested VCs expect equity and control over critical business decisions. 

Works Best

  • Big benefits from VC’s connections and knowledge
  • Founders with ample time to perfect offer and do many presentations
  • Willingness to share future profits and business strategy
  • The business idea is well prepared for rapid growth

Unsuitable

  • Unclear advantages of VC partnership
  • Owners too busy with daily operations and lack pitch preparation
  • Desire to maintain full control of the business 
  • Product marketability or business model lacks refinement

Works Best

  • Big benefits from VC’s connections and knowledge
  • Founders with ample time to perfect offer and do many presentations
  • Willingness to share future profits and business strategy
  • The business idea is well prepared for rapid growth

Unsuitable

  • Unclear advantages of VC partnership
  • Owners too busy with daily operations and lack pitch preparation
  • Desire to maintain full control of the business 
  • Product marketability or business model lacks refinement

Final Thoughts

There is a lot to learn when manufacturing a new product. But knowing more about common cash flow issues is an excellent way to prevent unexpected problems. 

Our advice is to keep learning and be more aware of what will work best for your situation. Proper planning is the best way to make your product dreams come true. 

Do you agree that cashflow is one of the biggest issues when launching a new product? Share your opinion about why (or why not!) in the comments!

Final Thoughts

There is a lot to learn when manufacturing a new product. But knowing more about common cash flow issues is an excellent way to prevent unexpected problems. 

Our advice is to keep learning and be more aware of what will work best for your situation. Proper planning is the best way to make your product dreams come true. 

Do you agree that cashflow is one of the biggest issues when launching a new product? Share your opinion about why (or why not!) in the comments!

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