5 Strategies for Effectively Managing Cash Flow for Your Start-Up

Posting by Geoffrey Brown, CPA

Starting a business is fraught with many potential pitfalls, but there is one important area of focus that can help you avoid those pitfalls and grow your business: cash flow. By managing cash flow and treating cash as if it’s a finite asset, you can avoid some of the common pitfalls facing start-ups.

Here are five basic steps to help you manage your company’s cash and build a foundation for a profitable business:

  1. Establish Goals. Every start-up needs a business plan and embedded inside that plan should be financial projections. You’ll have income projections, and maybe even a balance sheet projection, but you should also have your cash sources and uses projected for the first few years of operations. While we all know that projections tend to change and that actual results will differ, it is necessary to have a starting point from which to plan. The cash sources and uses need to be plotted out over time so they can be used as benchmarks for your actual results.
  2. Keep Track. The most important thing to remember about managing cash flow is that you can’t manage it unless you can keep track of it first. During the start-up phase, it’s essential to keep track of all cash coming in and going out of your business. Tracking the sources and uses on a monthly basis, and comparing to your projections, will give you a solid idea of whether or not your business is meeting expectations.
  3. Don’t Get Carried Away. One of the mistakes that I have seen too many times is when a start-up is flush with cash, management can act like it’s a mature company and spend money on luxuries they cannot afford, such as autos, expensive meals, fancy offices, etc. A start-up needs to act like a start-up and treat its cash as its most important investment. Owner(s) should take minimum salaries and have limited expense accounts. Tight controls over cash spending is critical.
  4. Appoint a “Cash Monitor.” The cash monitor (this could be an accountant, controller or CFO, depending upon the maturity of your start-up) should be keeping track of cash on a daily basis, reconciling bank records with your internal records. The cash monitor also needs to have direct access to the majority owner and keep him/her up-to-date on cash spending and any unusual activity.
  5. Conduct Regular Reviews. As an owner, you must implement strict spending guidelines and allow no exceptions. Review expected cash outlays with the cash monitor weekly and decide what gets paid when.A constant review of cash outlays relative to projections is also a strategic necessity. Asking questions of whether expenses are as planned, better than planned or worse than planned can determine whether or not the start-up becomes a self-sustaining business.

As you look to start and grow your business, set clear goals and spending guidelines and stay on top of the financial ins and outs of your operations. While improper planning can take your focus from growing and operating a newly acquired business, proper cash flow planning will better enable you to concentrate on business opportunities and achieve growth.

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