How to Manage Cash Flow for a New Business?

By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team
Published on May 5, 2023

Managing cash flow is crucial for the success of any new business, so we’ve gathered insights from experienced professionals to help you navigate this challenge. From establishing an emergency fund to ensuring timely payments and incentives, here are the top seven tips shared by founders, directors, and managers on best practices for managing cash flow in a new business.

  • Establish an Emergency Fund
  • Budget and Maintain Working Capital
  • Use Cash Flow Projections and Software
  • Prioritize Bookkeeping Fundamentals
  • Adopt Proactive Budgeting
  • Negotiate Payment Terms
  • Ensure Timely Payments and Incentives

Establish an Emergency Fund

Be sure to have an emergency fund. While it could be used for last-minute urgencies, it can also be used for other channels that have gone over budget. For example, if your team allocated $60K to eCommerce for the year and it looks like you’ll use all of those funds before the end of the fiscal, turn to the emergency fund. This helps you prepare for any unforeseen circumstances.

Christy Pyrz, Chief Marketing Officer, Paradigm Peptides

Budget and Maintain Working Capital

Good cash flow management is essential for any new business. One best practice for managing cash flow is to create a budget and monitoring system. The budget should both track revenues and expenditures ‌while also summarizing expected income versus expenses that capture the full financial picture. 

A tip for managing cash flow is to have enough working capital available. Having sufficient reserves to cover financial deficits or unforeseen fees helps cushion sudden changes in revenue, provides funds for emergency investments, and ensures that your business remains profitable over time.

Julia Kelly, Managing Partner, Rigits

Use Cash Flow Projections and Software

As a business advisor, I always advise my clients to maintain regular cash flow projections and make informed decisions about their business. There’s no better way to monitor your cash flow than by staying on top of bookkeeping. Books of accounts allow businesses to develop financial models that reflect their actual up-to-date financial records.

I’ve seen startups fail because of their failure to maintain any bookkeeping, leaving them financially blind in their operations. This also reflects in statistics wherein 53% of small businesses using accounting software reported increased revenue in their first year of use.

The easiest way to keep track of your business accounts is by using accounting software. The most popular and probably also the most reliable would be QuickBooks. I also used this dedicated accounting tool during my early years as an entrepreneur. It is not cheap, but its convenience allows easy sharing with staffers and bookkeepers, making it very much worth it.

Jonathan Merry, Founder, Moneyzine

Prioritize Bookkeeping Fundamentals

The number one tip I can give to new businesses in managing their cash flow is to make sure they have solid bookkeeping fundamentals in place. There’s a saying “garbage in = garbage out” that is pertinent to cash flow management and accounting. 

While creating a cash flow forecast and improving your AR (accounts receivable) collections process are excellent (and more exciting) ways to improve your cash management, they ultimately depend on solid fundamentals. 

Good bookkeeping data looks like 2 things:

  1. Accurately coded: Accurately coded data is data that has been verified against source documents.
  1. Consistently coded: Your data needs to be coded accurately, in the same way, every time in your accounting systems (i.e., two different transactions of the same type are not recorded differently).

When you know your data is clean and organized, you can confidently plan and forecast your cash position.

Kelvin Gieck, Co-founder, Helm Cash Flow

Adopt Proactive Budgeting

Plan your expected cash inflows and outflows and adjust expenditures according to your results.

Proactive budgeting takes some strategizing, but it can make a massive difference in the success of a new business. For instance, one of my previous clients noticed a steady rise in sales over a few months. This enabled them to change their budget, allocate more funds for marketing, and invest in new equipment and personnel to meet the surge in customer demand.

You need to stay on top of your finances to do proactive budgeting. Monitor your income and expenses regularly and keep your budget up to date. This will help you recognize ways to save money and areas to invest in for business expansion. Maintaining your budget proactively ensures you have the resources you need.

Pete Evering, Business Development Manager, Utopia Management

Negotiate Payment Terms

One great practice for managing cash flow for a new business is to negotiate payment terms with suppliers and customers. By negotiating payment terms with suppliers and customers, you can help ensure that you have a steady stream of cash coming in and going out, which can help improve your cash flow and overall financial stability.

For suppliers, consider negotiating longer payment terms to give yourself more time to pay your bills. This improves your cash flow by allowing you to hold on to your cash for longer.

For customers, offer discounts for early payment or implement late payment fees. This can encourage customers to pay their bills on time, which can help improve your cash flow.

Ben Mcinerney, Director, Go Tree Quotes

Ensure Timely Payments and Incentives

For a new business to manage a healthy cash flow, they should collect payments on time or even quicker! Issue your invoices efficiently with no delay as soon as business is confirmed. If the payment still defaults, consider charging interest on the overdue payments to get this on track. 

To encourage payments to be received on time and are on track, consider offering some “early-pay incentives”. For our travel business, we practice this chain of closing a booking—raising an invoice—receiving a payment or booking release. We proactively give the deadline of payment in advance so that they are prepared and it is not a rush for them.

Monica Arun, Founder, Globetrotter LLC

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By Greg Grzesiak Greg Grzesiak has been verified by Muck Rack's editorial team

Greg Grzesiak is an Entrepreneur-In-Residence and Columnist at Grit Daily. As CEO of Grzesiak Growth LLC, Greg dedicates his time to helping CEOs influencers and entrepreneurs make the appearances that will grow their following in their reach globally. Over the years he has built strong partnerships with high profile educators and influencers in Youtube and traditional finance space. Greg is a University of Florida graduate with years of experience in marketing and journalism.

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