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Effective Cash Management Strategies for New Business Owners

As a new business owner, you have a lot on the line.

You might have quit a comfortable job recently, have a family to support, or are starting your business with minimal funds. 

At the very least, you’re starting a brand new venture, where anything could happen. 

While the unknown feels scary, focusing on effective cash flow management habits from the start can help you create a thriving, profitable business. 

And that’s what we’re here to help you with today. 

Read on to discover the top cash management strategies ideal for new business owners.

1. Separate your business expenses from your personal 

To stay as organized as possible, set up separate bank accounts and bookkeeping methods for your business and personal finances. 

You can then either pay yourself a salary from the business checking account to your consumer checking account or reinvest your profits in a separate business savings account. 

You’ll also need to consider your business structure. Work with a registered agent and financial advisor to understand your options and how to best divide your business financials from your personal. 

If you’re starting your business with a large amount of capital, funding, or assets, you might also consider looking into offshore asset protection strategies. These methods can provide an extra layer of financial security by placing assets in an offshore jurisdiction, often beyond the reach of creditors.

2. Set financial goals that can help increase your cash flow 

Staying stagnant isn’t the reason businesses were created. While every entrepreneur has their own idea of what growth means to them, setting goals can help your business continue to have the capital it needs to thrive.

Considering your current business model and financial obligations, what goals can you set to help you have a healthy future cash flow? 

For instance, if you just opened a marketing agency, you might set the following goals:

  • “Raise our rates by five to 10% per client per year”
  • “Onboard 10 new clients per year”
  • “Hire three new employees per year to help with new accounts”

With these goals in mind, look at your calendar and schedule in time to raise your rates, conduct outreach, and meet with potential job candidates throughout the year. This is crucial to turning your goals into a reality.

3. Create a business budget and a plan to help you invest back into the business 

Creating a budget and a solid plan to reinvest in your business is crucial for long-term success. 

Here’s what to consider:

Startup business costs

When starting a business, there are initial expenses to consider. These include branding fees, legal fees, licensing, permits, and any necessary business registrations, such as LLC formation costs

Operating costs

These are the regular expenses you encounter while operating your business. This may include rent, utilities, insurance, marketing and advertising, logistics payments, software subscriptions, and office supplies.

Flexible expenses

Some costs are variable and can fluctuate based on changes in your business. These might include travel expenses, client meetings, or seasonal marketing campaigns. It’s essential to allocate a budget for these flexible expenses to adapt to your business needs.

Savings, growth, and re-investing in your business

Setting aside a part of your revenue for savings and investments is crucial to protecting your business’ future cash flow. Consider setting aside a portion of these funds for business expansion, upgrades, or exploring new opportunities. This allocation can help you stay ahead of the curve and seize growth opportunities.

Emergencies

It’s wise to have reserves for unexpected expenses or emergencies. This can be in the form of a credit card, a line of credit, or liquid cash. Having a cushion can help you navigate unforeseen circumstances without disrupting your business operations.

In addition to these practices, consider the benefits of using financial management software. Such tools can provide real-time insights into your financial health, streamline tracking systems, and and enhance financial efficiency.

4. Track your cash flow and manage spending habits 

Maintaining financial stability and making informed business decisions isn’t possible if you’re unsure about your cash position, fluctuations, and spending norms. 

To get a grip on your cash flow cycle, consider the following:

Know your receivables inside and out

Monitoring and collecting receivables is essential to ensuring a healthy cash flow. By staying on top of your incoming payments, you can maintain a steady flow of income and avoid cash flow gaps that can hinder business operations. 

For instance, if all of your client retainers are due on the first of each month, you’ll know to be diligent about organizing debits to fall right after the first. 

*Pro-Tip: Implementing management systems such as using spend management tools, automating emails for follow-ups, and setting up contracts with clear payment terms, can help you streamline your receivables management process. You might also have your clients set up direct deposits to your business checking, or you can automate withdrawals from their accounts for monthly retainers and payments. 

Be wise with your business spending

Being mindful of your business spending habits is vital to maximizing your resources and avoiding unnecessary expenses. 

Set up systems to help you track your spending, manage outgoing payments, and track your cash position. This can help you understand your true working capital, identify potential fluctuations, and make accurate cash flow projections. 

Our advice? Use a reliable money tracking app that allows you to categorize expenses, analyze trends, and have a real-time overview of your business’s financial health. Use the insights you gather from your money tracker to uncover potential debits you can strike off the list or reduce. 

For instance, maybe you can part ways with your six productivity apps and invest in a cheaper, more consolidated all-in-one productivity platform instead. Or, if you’re noticing that your office rent is dragging profits down, and your team can easily work from home, you might consider going remote instead.

TL;DR: Don’t let your cash flow become a mystery. Take control by implementing effective tracking systems and using technology to streamline financial management. 

Consider employee salaries and contractor fees

Don’t forget to factor in your team costs, such as how much you’re paying your employees and contract workers. This is especially important to consider if you pay each person different rates at different times and for different time periods. 

For instance, if you own a new marketing agency, you might outsource five contractors who you expect to earn between $1,000 to $10,000 per month with you. You might also have hired three part-time employees earning $4,000 per month with you. 

With these figures in mind, you’re looking at a minimum of $17,000 monthly in team payments with a maximum of $62,000 per month. That’s quite a range. 

To make sure you’ll be able to pay every employee and contributor, create a system or a tracker that shows:

  • Which ideal dates you should remit payment on in line with your receivables 
  • How much you owe them per pay period
  • Your remaining cash flow and business profit after paying them  

5. Work with a tax specialist 

Tax laws can be complex and ever-changing, which means you may want to consider seeking guidance from accountants or financial advisors. These professionals have the knowledge and experience to navigate the intricacies of tax regulations, maximizing deductions, and minimizing tax liabilities. 

They can also provide personalized advice tailored to your business’s unique needs and goals, helping you make informed financial decisions.

In addition to working with a tax specialist, you can also use specific calculators and bookkeeping software. 

For instance, with the rise of cryptocurrency transactions, even traditional businesses may encounter crypto-related financial activities. Implementing software like a crypto tax calculator can be an invaluable asset, ensuring your business stays compliant with specific tax regulations.

As far as bookkeeping software goes, look into:

  • Bill.com
  • FreshBooks
  • Zoho Books

You can also create custom trackers using Microsoft Excel or Google Sheets.

6. Automate routine payments 

As a business owner, redundant tasks can eat up your precious time — and that includes routine bill paying. 

For one less thing to worry about, consider automating your repetitive payments. For instance, set up auto drafts for your operating costs, such as your WiFi bill, rent, and software subscriptions. 

You might also consider setting up recurring vendor payments, automated employee direct deposits, and automated retainer payments to pay your vendors, team members, and contractors in your sleep. 

Again, we can’t stress the importance of being wise with your debits. Make sure to schedule them to come out of your account after your receivables have been deposited to make sure you have adequate funds to cover everything.

Here’s an example to demonstrate what we mean:

  • 1st of the month: Incoming receivables for copywriting services 
  • 3rd of the month: Autopay all copywriters 
  • 5th of the month: Incoming receivables for ad management services 
  • 7th of the month: Autopay all ad managers 
  • 10th of the month: Incoming receivables for link-building services 
  • 13th of the month: Autopay all link builders 
  • 15th of the month: Incoming receivables for content strategy services
  • 17th of the month: Autopay all routine bills 
  • 19th of the month: Incoming receivables for SEO consulting services
  • 21st of the month: Autopay yourself and send money to your business savings account and your business investment accounts 

Wrap up 

And there you have it!

In this article, we explored top cash management strategies for new business owners. 

We discussed the importance of tracking cash flow, managing spending habits, and monitoring receivables. We also touched on the value of having a money-tracking app for accurate insights into working capital. 

For good measure, here’s a quick recap of the exact strategies we shared today:

  1. Separate your business expenses from your personal
  2. Set financial goals that can help increase your cash flow
  3. Create a business budget and a plan to help you invest back into the business
    • Startup business costs
    • Operating costs
    • Flexible expenses
    • Savings, growth, and re-investing in your business
    • Emergencies
  4. Track your cash flow and manage spending habits
    • Know your receivables inside and out
    • Be wise with your business spending
    • Consider employee salaries and contractor fees
  5. Work with a tax specialist
  6. Automate routine payments

By implementing these strategies, you can navigate entrepreneurship with confidence and build a prosperous business.

That’s it for now, entrepreneurs.

Here’s to your success!


Author Bio

Reid Burns has his roots in supply chain, handling global teams for private label companies. He has since transitioned to freelance work, providing thought leadership in the e-commerce domain.


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