Liquidity crises are a physiological phase of a startup’s journey. The difference lies not in avoiding them, which is often impossible, but in knowing how to foresee and manage them without losing control. As we saw in previous articles, everything starts from two key tools: cash flow and budget. They are not mere planning exercises, but true early-warning systems. Monitored with rigour, they make it possible to anticipate moments of tension and intervene before they become critical.
A natural journey
In its first years of life, a startup almost always lives in a condition of “cash burn”: outflows exceed inflows and the cash gets consumed month after month. That is normal. To sustain this phase, companies turn to risk capital, business angels, VC funds, family offices, which finances growth up to the point where the model becomes sustainable and starts generating cash. That is also why startups go through several investment rounds (seed, Series A, Series B): each phase serves to buy time, growth and validation.
Alongside equity there is another lever, often underestimated: subsidised finance. National, regional and European grant programmes can be a precious support, though with logic and timelines very different from private investment.
When a liquidity crisis is born
A liquidity crisis rarely arrives out of the blue. In most cases it is the result of a gap between expected inflows and actual collections. Such situations can arise, for example, from a major client failing to pay an invoice, from a delay in closing an investment round, or from a delay in receiving the sums of a grant that has been won.
Foreseeing these moments, with a 3-6 month horizon, is of fundamental importance in order to implement correction and mitigation strategies. Anticipating the problem means still having room to choose.
The operational levers for managing liquidity
When cash tension approaches, concrete tools are needed. There is no single solution: the answer is often a combination of several levers.
Bank loan
In periods of liquidity crisis, a financial instrument of primary importance is the bank loan. This instrument makes it possible to acquire new liquidity in relatively short times, with medium or long repayment periods. In such contexts, the bank loan stands as the main instrument for supporting the company through phases of financial difficulty. In addition, Italian startups can benefit from a guarantee provided by Medio Credito Centrale (MCC) on 80% of the amount requested from the bank.
Invoice advance
It is frequent for a startup to find itself delivering a project, or a Proof of Concept (POC), for a large company whose supplier payment policies may be incompatible with those of a startup. In such circumstances, the startup may have to advance the project’s development costs and collect the related revenues with a delay of 60, 90 or 120 days.
In these cases, when the invoices carry high amounts, the invoice advance operation can be a valid financing alternative for the startup. The operation takes the form of an assignment of the receivable arising from the invoices to a specialised operator, typically a bank, which commits to immediately paying the assignor a sum lower (at a discount) than the invoice amount.
For the startup, collecting a smaller sum immediately can be more convenient than waiting through the payment terms to collect the full invoice.
VAT recovery
Effective VAT management can be a crucial element in periods of financial crisis. In particular, during the first years of activity, startups incur expenses higher than revenues, typically generating VAT outflows that can be a significant financial burden, sometimes not precisely budgeted.
The VAT paid during the year, not offset by VAT credits, can be recovered the following year. These amounts represent a liquidity resource of considerable importance, allowing the reduction of monthly outflows through horizontal offsetting.
Where VAT amounts are particularly high and hard to offset, one can consider assigning them, at a discounted price, to specialised operators, in order to obtain an immediate injection of liquidity for the company.
In conclusion, the most appropriate measures to adopt take the form of a combination of the strategies outlined above. However, the most relevant element in these contexts lies in the ability to make accurate forecasts, not only in terms of amounts, but above all in relation to the timing and the critical moments of financial tension.