Accounting & Finance

Tips on how to manage cash flow as a new business

  • 5 min Read
  • May 16, 2016

Author

Escalon

Table of Contents

According to Dun and Bradstreet, 90% of small businesses fail because they have a poor cash flow.


In other words, companies fail because they don’t have enough money coming in to balance the amount going out.


This is why managing your cash flow is vital to the success of your startup.


In this article we look at tips on how to manage cash flow as a new business. First, let’s cover a few basic things about cash flow.


The details of your cash flow



You know that cash flow is the movement of cash in and out of your company.


Your positive cash flow is the money coming in from sales and accounts receivable. To be considered a positive cash flow, it has to be more than the money leaving your business.


Your negative cash flow refers to the money leaving your business to cover salaries, accounts payable, and your expenses. Your cash flow is negative when the money going out is more than what’s coming in.


A negative cash flow is a thing for new businesses to avoid. One way to avoid a negative cash flow is to monitor the movement of your money on a weekly, monthly, quarterly, and yearly basis.


Micromanagement is certainly okay when it comes to your money . The best way to come out on the positive side is to analyze and manage your cash flow often.


Here are tips on how to manage your cash flow and keep it in the positive region.


Plan for the future



If you don’t already have a plan for your future, it’s time to build one now.


You don’t want any surprises down the road, especially when it comes to your cash flow.


In the beginning, you want to make sure someone you trust is handling your accounting. They should be processing money in and money out on a daily basis. You’ll find this most helpful for planning for the future.


Once you’ve had a month or two of income and cash flow statements, you can begin to make projections for the next several months.


A cash flow worksheet is a good place to start when projecting future cash flow.


Make your cash work for you



Your bank can offer you an interest-bearing account. This way you can put your cash to work for you.


While you might run up against a minimum balance requirement, and these accounts don’t have high interest rates, they are a nice way to make a little extra cash.


We do recommend keeping the bulk of your money in a higher interest-paying account. Keep it available, though, so you can transfer funds as needed. Stay away from long-term certificates of deposit because they tie your money up for long periods of time.


Another way to keep your money working for you is with your payroll. Here are a few tips:


• Offer direct deposit only. This saves you money writing and delivering paychecks.

• Pay on a bi-monthly cycle. This means you pay your employees just 24 times a year instead of the 26 times per year when you pay bi-weekly. This saves administrative costs.

• Transfer payroll funds right before payment to keep earning interest until the last minute.


Maximize cash flow



­If your new business is involved in contractual work or custom products, require security deposits or payment up front.


You might consider subscription services if you offer a regular service or product. An example of this would be a housecleaning business or spa maintenance company. Instead of taking payment each week, you could charge a monthly fee due at the first of the month.


Think about ways you can get money in your hands on a regular basis to improve cash flow.


Maintain a reserve



Most new businesses are glad to have a cash reserve at one time or another.


Extra money in the bank may mean the difference between your success or your failure. A cash reserve can help you navigate the stressful days of cash shortfalls. Every business has them, and the cash reserve can lessen their impact.


Final thoughts



You want to know two things when considering your cash flow.


• What is your balance right now, today?

• How much cash do you think you’ll have on hand in six months?


If you can answer these two questions, you are well on your way to managing cash flow as a new business.


You’ll have a better chance at success if you can manage your cash flow wisely and make educated projections for the future. This also helps ensure you have enough money on hand for emergencies, expenses and growth.



Are you a new startup? Are you looking to get your new business off the ground and watch it rise to success? We are here for you. We can help answer your questions and guide you through the process. Outsource your finances, payroll, HR duties and more to us. Contact Escalon today to get started.


Image: Leo Rivas-Micoud

Talk to our team today to learn how Escalon can help take your company to the next level.

  • Expertise you can trust

    Our team is made up of seasoned professionals who bring years of industry experience to the table. You gain a trusted advisor who understands your business inside out.

  • Quality and consistency

    Say goodbye to the hassles of hiring, training and managing in-house finance teams. You will never have to worry about unexpected leave of absence or retraining new employees.

  • Scalability and Flexibility

    Whether you’re a small business or a global powerhouse, our solutions scale with your needs. We eliminate inefficiencies, reduce costs and help you focus on growing your business.

Contact Us Today!

Tap into the latest insights from experts in your industry

People Management & HR

The Advantages of Outsourcing HR for Nonprofits with Limited Budgets

Nonprofits play a vital role in addressing societal issues, but managing the intricacies of human resources (HR) within the constraints...

Read More
People Management & HR

The Benefits of Partnering with Experts: Why Startups Should Consider Recruiting Outsourcing

When you're leading a startup, your time is precious. Every decision, every action needs to be focused on growing your...

Read More
Leadership & Growth

Meet the Experts: Karl Pawlik

Karl Pawlik’s career has been defined by his ability to navigate complex industries and leverage his financial expertise to drive...

Read More
Private Equity

Optimizing Operations for Long-Term Value Creation

Private equity (PE) firms have always been driven by the goal of delivering strong returns, but today’s market landscape demands...

Read More
Taxes

Navigating Nonprofit Tax Exemptions: Escalon’s Guide to Staying Compliant

Nonprofits are a cornerstone of communities, addressing critical needs, fostering growth, and making a meaningful difference. But with great impact...

Read More
Taxes

Your SMB’s Compliance Calendar: Key Deadlines You Can’t Miss in 2025 

Running a small or midsize business comes with enough challenges – compliance shouldn’t be one of them. Staying ahead of...

Read More
Accounting & Finance

Cash Flow Strategies for Life Sciences Companies: How to Stay Liquid in a Capital-Intensive Industry

In the fast-paced world of life sciences, innovation is king. But staying ahead of the curve often comes with hefty...

Read More
Accounting & Finance

CFO vs Controller: How Startups Can Benefit from Both

CFO vs Controller: How Startups Can Benefit from Both  As companies grow, managing finances and accounting becomes increasingly important. A...

Read More
Small Businesses

The ROI of Outsourcing Business Services: How to Measure Your Investment’s Impact 

The ROI of Outsourcing Business Services: How to Measure Your Investment’s Impact  In a world where every dollar must count,...

Read More