Founders’ Guide to Thrive: Managing Cash Flow

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“Poor cash-flow management is causing more business failures today than ever before.”
– Philip Campbell, a CPA and former CFOs in several companies and author of Never Run Out of Cash.

Cash flow is something everyone worries about and as a startup, you’re usually on top of your cash flow all the time. With COVID, cash flows have taken quite a hit, and so, the management of cash flow is very important in such troubling times. 

Let’s start from the absolute beginning, what is cash flow? Simply put, it is the movement of cash in/out of a business. Cash flow management, on the other hand, is delaying giving out money but encouraging people who owe you money to repay you ASAP.

There are two kinds of cash flow:

  • Positive: When you’re receiving more cash than you’re giving out.
  • Negative: When you’re giving out more cash than you’re getting.

Much like all good things, getting to a positive cash flow is difficult and takes time to achieve. For startups and SMBs, accounting software like Intuit QuickBooks is very helpful in managing cash flow. That being said, understand that profit and positive cash flow are two different things.

To grasp how to manage or control your cash flow, start by answering these two questions:

  1. What is my cash balance right now?
  2. What will my cash balance look like 6 months from now?

If you don’t understand or are unable to answer then it is safe to say that you don’t have control over your cash flow. If you’re able to answer these then you’re on the right track and these numbers will be able to precisely tell you how much is going in and out of your business.

Here are a few things you can do to achieve better cash flow:

Improve Receivables

Here, you want to look at speeding up the receiving and processing of receivables. If done right, you will be able to speed through the turning of materials and supplies into products, inventory into receivables, and receivables into cash. 

  • Ask customers to make deposit payments at the time orders are taken.
  • Require credit checks on all new non-cash customers.
  • Issue invoices promptly and follow up immediately if payments are slow in coming.

Tighten Credit Requirements

Before you extend credit to your customers, you want to ask your potential customers to fill out a credit application. While at it, also check references- they are key to understanding who you’re dealing with.


It is very obvious to say that to manage cash flow you need to get more customers. But to effectively convert a prospect into a paying customer requires a lot of money and time but is also a very daunting process. You want to sell more to existing customers as it’s the cheaper option and also because it allows you to understand your consumer base better- why are they buying, what are they buying, etc. This information can lead to an increase in your profit margin and more revenue. This can backfire if your sales are being made on credit that will in turn increase your receivables, so be careful. 

Managing Payables

How you handle your expenses is key to managing your cash flow. 

  • Examine your costs and see where you can cut down. 
  • Have a good relationship with your suppliers so you can then benefit from their trust and understanding if you ever need to delay payment.
  • Carefully research on the offers from your suppliers, the devil lies in the details.
  • Capitalise on the creditor payment terms- if it’s due in 20 days, don’t pay it in 5 days. Unless there’s a worthwhile incentive for you to pay early, figure out how late you can pay your vendors without risking late fees or harming your relationship.
  • Choose a flexible payment programme, they can often help with cash flow management.

Keep your cash growing

Keep your cash in credit-earning accounts. Consider keeping the bulk of your funds in higher-paying accounts, then transferring funds to meet the minimum balance requirement in your interest-bearing checking account. You don’t want to lock in your money for a specific period of time in a long-term deposit. Redeeming those can cause you to lose out on interest. Or, you can invest in penalty-free certificates.

Monitor Inventory

Inventory management is very crucial. Do you have equipment that is soaking up your working capital? You don’t want that. Keep your inventory updated at all times so your working capital isn’t tied up or being unproductive. Cash in on your assets if you’re in a hurry and need money.

Buffer Money

Always have enough money to sustain the working capital of your business for at least 3 months. 

Short-term Cashflow Problems

It is perfectly normal to not be able to pay your bills on time for a small period of time. Short-term cash flow problems can be resolved once you’re able to establish what is happening and what caused it. Arrange for a line of credit in advance to be able to work around your cash flow problems. 

As I’ve said before, managing your cash flow is the key to your success. Decisions made in a hurry without prior research can make your company vulnerable to a cash flow problem. Consider joining a forum with fellow entrepreneurs to learn from each other the best ways to manage your cash flow.

Intuit Circles is a strategic startup ecosystem engagement initiative by Intuit, that facilitates business growth and knowledge for startups through smart-tech. It aims at powering prosperity for startups by providing for some of their biggest needs. If you’re a startup looking for a supportive community to help you grow your business, sign up on Intuit Circles today.

Join us next as we talk about Fundraising, do check out Arjun Pillai’s Cardinal Rules of SaaS pricing here.

Contributed by:

Sanskriti Bhatnagar
Headstart Network Foundation