Cash Flow Management for Startups

Cash flow problems kill more startups than bad products or lack of market fit. Here's how to manage your cash flow effectively during your business's critical early stages.

Understand the Cash Flow Cycle

Cash flow isn't the same as profit. You might be profitable on paper but still run out of cash if customers pay slowly or you have to pay suppliers upfront. Map out your entire cash conversion cycle—from when you spend money to when you receive payment.

Create a 13-Week Cash Flow Forecast

A rolling 13-week forecast is the gold standard for startup cash management. Update it weekly with actual results and new projections. This gives you enough visibility to spot problems before they become crises while remaining detailed enough to be actionable.

Accelerate Receivables

The faster you collect payment, the better your cash position. Consider offering small discounts for early payment, requiring deposits for large orders, and following up promptly on overdue invoices. Every day you shorten your collection period improves your cash flow.

Negotiate Payment Terms

Don't accept standard payment terms without negotiation. Ask suppliers for extended terms, especially if you're a growing customer. Even an extra 15 days can make a significant difference in your cash position.

Maintain a Cash Reserve

Aim to keep at least 3-6 months of operating expenses in reserve. This buffer protects you from unexpected expenses, slow sales periods, or delayed customer payments. It also gives you the flexibility to seize opportunities when they arise.

Monitor Daily, Not Monthly

In the early stages, check your cash position daily. Know exactly how much cash you have, what's coming in, and what's going out. This level of attention helps you make informed decisions and catch problems immediately.