Tips on how to manage cash flow as a new business

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