When it comes to running a startup, one rule reigns supreme: Cash is King. No matter how innovative your product is or how exciting your growth plans may seem, maintaining healthy cash flow is the foundation of sustainable business success. Mismanaged cash flow has been the downfall of countless startups, even those with promising potential. For venture-backed startups in particular, where cash burn and runway are key metrics, mastering cash flow management is a crucial skill.

Drawing from strategies and processes commonly applied to venture-backed startups, let’s dive into practical ways to sustain financial health and ensure your business isn’t just surviving, but thriving.

Why Cash Flow Matters More Than Ever

Startups often operate in an environment of uncertainty, which makes cash flow management even more critical. Whether it’s forecasting budgets, fundraising, or managing relationships with lenders and investors, understanding where your money is coming from and where it’s going is essential to maintaining liquidity.

For startups, cash flow isn’t just about today’s balance—it’s about ensuring future scalability and keeping your vision alive. Missteps in cash management can lead to delayed payrolls, strained vendor relationships, and worse yet, the inability to capitalize on strategic opportunities.

Best Practices for Managing Cash Flow

1. Forecasting and Budgeting

Start every month, quarter, and year with a detailed cash flow forecast. Predict how much cash will come in and go out, and prepare for variances. A good forecast involves:

• Accurate Budgets and Projections: Plan your spending and operational needs carefully. Factor in taxes, operational costs, salaries, and unforeseen costs.
• Scenario Planning: Venture-backed startups often rely on projecting various outcomes based on fundraising timelines, burn rate changes, or revenue growth. Be prepared to pivot if necessary.

2. Monitor Your Cash Burn

Cash burn refers to the rate at which your startup spends money to cover operating expenses. Understanding your burn rate relative to available cash ensures that you can calculate your business’s “runway”—how long your startup can operate before needing additional funding.

Healthy Cash Burn Analysis: Regularly analyze expenses to find areas where you can streamline. If you’re burning through cash too quickly, identify what’s driving the expenses and prioritize urgent or strategic investments.

3. Streamline Accounts Payable and Receivable

A slow accounts receivable process can choke your cash flow, while accounts payable left unchecked can delay vendor payments and cause strain. For healthier cash flow:

• Collections: Collect payments promptly by establishing clear payment terms and following up with clients. Automating invoicing can also reduce delays.
• Vendor Payments: While paying vendors on time is important, negotiate payment terms that allow you flexibility.

4. Fundraising and Working Capital Strategies

For venture-backed startups, external financing is often a critical component of maintaining positive cash flow. Some strategies include:

• Fundraising: Plan when to raise funds, ensuring your runway allows you time to negotiate favorable terms. Consider how much cash you’ll need to hit the next milestone.
• Financing Options: Look into working capital solutions or equipment lines that align with your growth objectives. Debt can be strategically leveraged to manage cash flow without diluting equity.

5. Optimize Cash Management Policies

Implementing policies and processes designed to improve controls and streamline financial operations is essential. Venture-backed startups often rely on:

• Month-End Close and Reconciliation: Keep track of accounts through regular reconciliations to avoid surprises.
• Dashboards and Metrics: Use metrics like cash runway, burn rate, and gross margins to make informed decisions and report to your board or investors.

6. Relationship Management

Strong partnerships with financial stakeholders can help alleviate cash flow concerns. Proactively manage relationships with banks, CPA firms, insurers, lenders, and other key stakeholders. Building trust through transparency and consistent communication ensures you’ll have the necessary support when financial decisions come into play.

7. Plan for Growth Through Policies and Tools

As your startup grows, so will the complexities of managing cash flow. Utilize tools and establish policies to stay ahead of inefficiencies:

• System Upgrades: Implement or upgrade financial systems to track cash flow in real time.
• Equity and Cap Table Management: Solidify your processes for stock option administration and cap table tracking as your startup expands.

Cash Flow: The Lifeblood of Your Business

Every successful venture-backed startup knows the power of cash flow. It goes far beyond keeping the lights on—it’s the key to driving growth, attracting investors, retaining talent, and capitalizing on market opportunities.

By building a robust cash flow management strategy, founders set the framework for long-term success while mitigating unnecessary risks. Remember: in the startup world, it’s not just about how much money you raise, but how effectively you manage it.

Planning, sticking to strategic budgets, and maintaining strong financial controls will allow your startup to weather storms and seize new opportunities. In the end, cash really is king—and managing it wisely will help ensure your startup builds an empire.

About Launch Finance

Launch Finance is a women-owned financial services firm dedicated to serving startups at all stages of growth across all industries with high-quality, cost-effective financial solutions. At Launch Finance, we empower our clients with the knowledge, tools, and confidence to turn insights into actionable strategies that propel their growth.