Cash Flow for New Business Owners

Cash flow, profit, expenses, revenue. Financial terms can make your head spin as a new business owner. Don’t worry though, we’ve got a guide that breaks down everything you could ever want to know about cash flow—and we explain it in a way you’ll understand. Our guide to everything your small business needs to know about cash flow makes it easy for you to manage your business finances. In this article, we give you a little preview of what's in the guide and offer some tips on how to manage the cash flow in your business from day one.

What is cash flow?

In business, cash flow just means the movement of money in and out of a company over a specific period. This involves the cash created by a business's activities—think the money you make by selling a dress at a clothing shop—as well as the cash used to support and sustain the business—think buying an inventory of dresses so you can sell them. Understanding and managing cash flow is directly linked to the financial health and stability of a business.

The big deal.

Now that you know what cash flow is, what’s the big deal? Well, a lot.

1. Your business’ sustainability

Positive cash flow makes sure that a business has enough liquidity to cover day-to-day expenses. Things like rent, payroll, contractors, and inventory. Having a stable, positive cash flow = financial stability.

2. Managing the ups and downs of running a business

It happens. New, small businesses—especially those in certain industries—have seasonal fluctuations in sales. Let’s take a retail store as an example. If a retail store owner spent all of the money that came in during the rush of the holidays, the business may not survive the slower January and February months. Those peak positive cash flow months are meant to help buffer against leaner times. Knowing your cash flow's ups and downs makes sure you can cover expenses even when the money coming in is slower.

3. Keeping your team happy—and paid

A negative cash flow means that you are going to have to start making tough financial decisions—decisions like paying your team or contractors or suppliers late. This can strain relationships with the most important people in your business. The good news is, this can be avoided if you have a good handle on the cash flow of your business.

Easily track your money.

While our guide is going to teach you everything you need to know about cash flow, we do want to get you started on the right foot right away. Here are some quick and easy ways to start managing your cash flow.

1. Ditch the spreadsheet and get tracking software

Whether you are using a spreadsheet on your computer or a pen and paper to track your sales and payments, trust us when we say, you are going to want to ditch them. Not only are you making things harder on yourself, the chances of making mistakes are pretty high. Say goodbye to the late nights and headaches from the manual tracking and say hello to easy-to-use software programs that do the hard work for you. Just plug in the numbers, and the software does the rest.

2. Keep a separate bank account for your biz

This may seem like a no brainer, but we know it happens especially when you're trying to get the business started. If you are mixing any personal finances with business finances, you are going to want to stop that right now. The future you will thank you. If you haven’t yet, go open a business account and even a business credit card—if you need one. This is going to make keeping track of your cash flow so much easier and give you one less headache during tax time.

3. Set up a cash flow planner

A cash flow planner is a system to help you see what’s coming down the line, so you never unexpectedly find yourself short on cash. It predicts how much money is coming in and how much is going out based on history and projected growth. Our guide gives you an example of how to set up a cash flow planner for your business.

Download our free cash flow guide

Taking cash flow into your hands can be empowering and with the right tools, it can be painless. If you still feel like finances are one big question mark, we’ve broken it down even further in our guide “Everything Your Small Business Needs to Know About Cash Flow”. We break down all of the financial terms you need to know and teach you the ‘what’, ‘why’, and ‘how’ of cash flow so you can create a solid, sustainable business positioned for continuous growth. Download our cash flow guide today: Homebase cash flow guide for new businesses