How to manage cash flow crisis moments

Sooner or later, it happens to every company. Even to the best startups, even to those that are growing well. Liquidity crises are a physiological phase of the journey. The difference does not lie in avoiding them - which is often impossible - but in knowing how to predict and manage them without losing control. As we have seen in previous articles, everything starts with two key tools: cash flow and budget. They are not simple planning exercises, but true early warning systems. If monitored rigorously, they allow you to anticipate periods of tension and intervene before they become critical.

A natural journey

During its first years of life, a startup almost always lives in a condition of "cash burn": outflows exceed inflows and cash is consumed month after month. This is normal. To sustain this phase, venture capital is used - business angels, VC funds, family offices - which finances growth up to the point where the model becomes sustainable and starts generating cash. This is also why startups face multiple investment rounds (seed, Series A, Series B): each phase serves to buy time, growth, and validation.

Alongside equity, there is another often underestimated lever**: subsidized finance.** National, regional, and European grants can represent valuable support, even if with very different logics and timelines compared to private investments.

When a liquidity crisis arises

A liquidity crisis rarely arrives suddenly. In most cases, it is the result of a mismatch between expected revenue and actual receipts. Such situations can occur, for example, following a failure to collect an invoice from a major customer, a delay in closing an investment round, or a delay in collecting funds related to a won grant.

Predicting such moments, with a time horizon of 3-6 months, is of fundamental importance in order to implement correction and/or mitigation strategies. Anticipating the problem means still having room to choose.

Operational levers for managing liquidity

When cash pressure approaches, concrete tools are needed. There is no single solution: often the answer is a combination of multiple levers.

Bank loan

During periods of liquidity crisis, a financial instrument of primary importance is represented by the bank loan. This instrument allows for the acquisition of new liquidity in relatively short times, with medium or long-term repayment periods. In these contexts, the bank loan is configured as the main tool to support the company during phases of financial difficulty.  Furthermore, startups can benefit from a guarantee provided by Medio Credito Centrale (MCC) on 80% of the amount requested from the bank.

Invoice financing

It is common for a startup to find itself carrying out a project, or a Proof of Concept (POC), for a large corporate, which may have supplier payment policies that are not compatible with those of a startup.  In such circumstances, the startup may have to pre-fund the project's development costs and collect the corresponding revenues with a delay of 60, 90, or 120 days.

In these cases, if the invoices are for high amounts, the invoice financing operation can represent a valid alternative source of funding for the startup. This transaction takes the form of selling the credit arising from the invoices to a specialized operator, typically a bank, which commits to immediately pay the transferor a lower amount of money (at a discount) compared to the face value of the invoice.

For the startup, it can be advantageous to immediately collect a lower amount rather than waiting for the payment terms to collect the entirety of the invoice.

VAT recovery

Effective VAT management can be a crucial element in times of financial crisis. In particular, during the first years of business, startups incur expenses higher than revenues, typically generating VAT debit outflows that can represent a significant financial burden, sometimes not accurately budgeted.

The VAT debit paid during the year, not offset by credit VAT, can be recovered in the following year. These amounts represent a highly important source of liquidity, allowing for the reduction of monthly outflows through horizontal offsetting.

In the event of particularly high debit VAT amounts that are difficult to offset, the sale of this credit, at a discounted price, to specialized operators can be considered in order to obtain an immediate infusion of liquidity for the company.

In conclusion, the most appropriate measures to adopt are configured as a combination of the previously outlined strategies. However, the most relevant element in such contexts lies in the ability to make accurate forecasts, not only in terms of amounts, but above all in relation to the timing and critical moments of financial tension.