How Can You Manage Cash Flow Effectively in a New Business?

Effectively managing cash flow is essential for covering expenses, investing in growth opportunities, and weathering unexpected challenges—from a long-term vendor leaving to suddenly needing a company vehicle. For new businesses, cash flow can be difficult with unpredictable revenue or limited resources.

Thankfully, seasoned CEOs and founders can offer their learned experience after successfully navigating these complexities. Below, you’ll discover valuable tips and insight on maintaining a healthy financial position through proven methods.

“How do you manage cash flow effectively in a new business?”

 

1. Start with a Forecast

“Always start with a forecast. A forecast helps preparation as well as helps in knowing when and how much the peak capital requirement will be. All transactions that happen in the day should be noted the same day. I recommend right after the close of business. This ensures all transactions are fresh and accounted for. Then a budget-vs-actual variance analysis needs to be done weekly to ensure that the business is on track with its budget. As a side note, I suggest always having a 1.5x peak capital emergency fund.” ~Kripa Dalal, AK Multinational LLC

 

2. Regularly Monitor Cash Flow

“Start by creating a detailed cash-flow forecast to project incoming and outgoing cash over a specific period. This helps anticipate financial needs and identify potential shortfalls. Regularly monitor your cash flow by tracking actual figures against your forecasts to ensure you’re staying on track and making adjustments as necessary.

“Prioritize prompt invoicing and follow up on overdue payments to maintain a steady inflow of cash. Implementing efficient inventory-management practices and negotiating favorable payment terms with suppliers can also help balance cash flow. Build a cash reserve to cushion against unexpected expenses or downturns. By maintaining a proactive approach to cash-flow management, you can ensure your new business remains financially stable and poised for growth.” ~Gary Hemming, ABC Finance Limited

 

3. Use Spreadsheets for Estimates

“Create a spreadsheet that estimates your cash inflows and outflows over a specific period. This lets you anticipate periods of cash surplus and shortages, making informed financial decisions easier. Regularly monitoring your cash flow using accounting software ensures you can accurately track income and expenses and make necessary adjustments. 

“Another vital aspect is managing receivables and payables efficiently. To speed up receivables, implement clear credit terms, and follow up promptly on overdue invoices. You can negotiate favorable payment terms with suppliers to delay outflows and maintain a positive cash flow. Controlling expenses is equally essential; reviewing your expenditures is crucial to identifying and eliminating unnecessary costs. 

“By categorizing expenses into essential and non-essential categories and looking for cost-saving opportunities, such as bulk purchasing or finding more affordable suppliers, you can ensure expenses align with financial goals.” ~Kristin Kimberly Marquet, Marquet Media

 

4. Focus on Effective Treasury Management

“As others mentioned, managing cash flow starts with a strong cash forecast. Once that is in place, it’s also essential to focus on effective treasury management. This will allow you to maintain liquidity by ensuring sufficient cash reserves to meet short-term obligations and optimize investment returns on surplus cash through safe, short-term investments such as treasuries. Continue to monitor your cash forecast and liquidity positions regularly to ensure effective cash flow management overall.”  ~Jack Perkins, CFO Hub

 

5. Avoid Unjustified Expenses

“Everyone is in business to make a profit. If your line expense is not going to be covered by a revenue stream that you are sure, with a good amount of confidence, will be there, do not spend it. If that expense cannot justify itself from a strategic or tactical standpoint, do not spend it. If the economy is tight and revenue is unsure, reconsider spending for strategic, far-into-the-future benefits unless you really have a hunch it is that important to position for.” ~Zain Jaffer, Zain Ventures

 

6. Set Up a Solid Accounting System

“Managing cash flow in a new business involves keeping a close watch on your income and expenses. Start by setting up a solid accounting system that tracks every dollar coming in and going out. Regularly review your financial statements to ensure you’re staying on top of your cash flow. It’s also helpful to have a cash buffer to handle any unexpected costs or slow periods.

“In addition, focus on maintaining healthy relationships with your clients and suppliers. For instance, offer incentives for early payments from clients and negotiate longer payment terms with suppliers if possible. This way, you can balance your cash flow and ensure you have the liquidity needed to cover your business expenses without stress.” ~Ryan Kelly, Easy Ice

 

7. Build Customer Relationships and Flexible Financing

“Focus on customer relationships and flexible financing options. Building strong relationships with your customers can lead to more predictable cash flow. Offering incentives for early payments or setting up subscription models can ensure a steady stream of revenue. 

“You can also explore alternative financing options that can help bridge cash-flow gaps. Consider lines of credit, short-term loans, or even crowdfunding if needed. These options can provide a financial cushion during slower periods or unexpected expenses. We’ve used flexible financing solutions to ensure we have the resources to take advantage of growth opportunities or cover temporary cash shortfalls. By balancing customer loyalty strategies with smart financing, you can keep your cash flow more stable and your business running smoothly.” ~Daisy Cabral, Bella All Natural

 

8. Create a Detailed Budget and Stick to It

“Managing cash flow in a new business is all about keeping a close eye on money coming in and going out. I start by creating a detailed budget and sticking to it as much as possible. This method helps me avoid overspending and lets me plan for upcoming expenses. I also make sure to invoice clients promptly and offer incentives, like discounts, for early payment to keep cash flowing in. I’ve worked like this since I started my business, and so far, I’ve been able to manage our finances without worrying about running out of money.” ~Daman Jeet Singh, FunnelKit

 

9. Understand Your Industry’s Unique Challenges

“Managing cash flow effectively in a new business requires a strategic approach tailored to our industry’s unique challenges. The first critical step is to develop a comprehensive understanding of your property portfolio’s income potential and associated costs. This means creating detailed financial projections that account for variables such as occupancy rates, seasonal fluctuations in demand, and potential maintenance expenses. 

“It’s crucial to maintain a conservative outlook, particularly in the early stages of your business. Overestimating income or underestimating expenses can quickly lead to cash-flow problems that are difficult to recover from.” ~John Gluch, Gluch Group

 

10. Act Quickly and Spot Cash Crunches

“We were able to manage our cash flow by carefully forecasting our expenses at the start of each quarter. My advice is to plan at least 3 months in advance and update weekly. This helps you spot potential cash crunches early. 

“I suggest being conservative in your estimates—overestimate expenses and underestimate income. If you see trouble coming, be sure to act fast. You might need to chase payments, cut costs, or seek additional funding at times, and this is much easier if you have time to act.” ~Chris Christoff, MonsterInsights

 

11. Predict Expenses with Free Tools

“To manage cash flow effectively in a new business, start by making a budget to predict your expenses and income. Keep some extra money aside for unexpected costs. Make sure to send out invoices on time and follow up if payments are late. Regularly check your cash flow to see where money is coming in and going out. 

“Also, try to save money by negotiating with suppliers and cutting unnecessary costs. Using software can help manage all this, and many are cheap or even free for startups until you make more money and hit their revenue thresholds and have to pay for them.” ~Travis Schreiber, Erase Technologies

 

12. Stick to the Short-Term 

“I diligently stick to short-term cash-flow forecasting. This way, I can keep track of how much money is coming in and going out over the weeks to spot any cash shortages before they become a problem. If I see that I’m going to be low on cash, I can make some changes, like delaying some expenses or looking for extra funding.

“I use simple tools like Excel to create my cash-flow models, and I have a 13-week projection that gives me a clear view of my finances. Plus, I always review these forecasts with my team. It keeps everyone on the same page and focused on our financial health.” ~Gary Gray, CouponChief.com

 

13. Maintain a Steady Rhythm in Cash Flow

“Think of managing cash flow in a new business like keeping a steady rhythm in a dance. You want to be in sync with your incoming and outgoing money. First, set up a clear budget and monitor your cash flow regularly to ensure you know exactly where your money is going and when. Encourage customers to pay you quickly by sending out invoices immediately and offering small discounts for early payments. 

“On the flip side, keep your expenses low by negotiating better deals with suppliers and cutting any unnecessary costs. Having a cash reserve can be a lifesaver, providing a cushion for unexpected expenses or slower business periods.

“Another important strategy is to avoid overstocking by managing your inventory wisely. This reduces the amount of cash tied up in products sitting on your shelves. If you need a temporary boost, consider short-term financing options like lines of credit, but make sure you understand the terms and manage repayments carefully. Seasonal businesses should save extra cash during peak times to cover expenses during off-seasons. Also, negotiating longer payment terms with suppliers can help keep more cash in your business.” ~Steven Mitts, IVeinte Spirits

 

14. Prioritize a Cash Reserve

“One tip that I can give to new businesses to manage their cash flow is maintaining a cash reserve. I always aim to have enough cash on hand to cover at least three months of operating expenses. This buffer provides peace of mind and helps weather unexpected setbacks or slow periods. 

“I’m also strategic about timing major purchases or investments, ensuring they align with periods of stronger cash flow. Also, I’ve found that utilizing financial tools like lines of credit can provide additional flexibility when managing cash flow, though I’m cautious about taking on debt unnecessarily.” ~Ben Whitmarsh, Generators for Export

 

15. Negotiate Favorable Payment Terms with Vendors

“Negotiate favorable payment terms with vendors—even if you don’t need them. As a new business, unexpected costs will arise, and you may need cash urgently. Even if you don’t need NET90 payment terms, figure out a way in which you can work with vendors to get some sort of post-delivery payment plan sorted. 

“This will increase your chances of being able to make strategic—or necessary—investments as needed to grow your business or simply to keep operations going. You’ll be able to operate without having to stress about whether or not sales from this month can cover expenses, especially when seasonality hits.” ~Firas Kittaneh, Amerisleep Mattress

Image: Envato

This article, “How Can You Manage Cash Flow Effectively in a New Business?” was first published on Small Business Trends