How to manage cash flow in a startup.

A practical guide for founders

By Candice Brett, Managing Director, Pivotal Finance

If you are running a growing business, cash flow is probably one of the things that keeps you up at night. When revenue goes up, the bank balance does not always follow, and the gap between the two can be a real headache if it is not managed properly.

This blog sets out the practical steps founders and business leaders can take to get on top of cash flow and build financial visibility that enables them to run a business with confidence.

Cash flow is not the same as profit

A common misunderstanding among founders is treating profitability and cash flow as the same thing; they’re not. A business can be profitable on paper and still run out of cash, it happens more often than you might expect, and it is one of the leading reasons growing businesses get into difficulty.

The reason behind it is often timing. You might have strong sales, but, if your payment terms haven’t been effectively negotiated, it can create a short-term void. This is compounded if you are also investing in stock where cash is tied up in your warehouse.

Know your numbers

If you don’t know where your cash is at any given moment, how much is coming in and what is going out and when, you are flying blind which creates significant risk as the business scales.

At a minimum, you need a rolling cash flow forecast that is updated regularly. It doesn’t have to be complicated; a simple model showing your opening cash position, projected receipts, projected outgoings and closing cash position, broken down by week or month, gives you the visibility you need to make informed decisions. If the closing balance turns negative at any point in that forecast, you have time to do something about it.

“If you don’t know where your cash is at any given moment…you are flying blind…”

Get your receivables under control

Late payment is one of the biggest drivers of cash flow problems in UK business, with 38 businesses closing every day because they are not paid on time.

The government is seeking to address this through the Small Business Protections Bill. If passed, it would:

●      Cap payment terms at 60 days for large businesses paying smaller suppliers

●      Make interest on late payments mandatory

●      Give the Small Business Commissioner new powers to investigate and fine persistent late payers.

The legislation has not yet received Royal Assent, but is expected to come into force in 2027. For growing businesses, it is an important development to track.

In the meantime, the most effective thing you can do is make it easy for customers to pay on time:

●      Ensure you include clear payment terms on every invoice

●      Implement a consistent process for chasing overdue accounts

●      Get comfortable with having the conversation if payment does not arrive

●      Review your payment terms - net thirty is standard, but shorter terms, deposits on larger orders, or stage payments could be accepted.

Manage your payables

Just as you should be working to receive money faster, you should be making considered decisions about when you pay it out. If your supplier offers thirty-day payment terms and you are paying on receipt, you are effectively giving up free credit you are entitled to use.

Where you have leverage, it is worth negotiating. Longer payment terms with key suppliers, phased payments on large purchases, or timing significant expenditure to land after a known cash receipt can all improve your position without any additional cost to the business.

Build a cash buffer

Most financial advisers recommend that businesses hold a cash reserve equivalent to two or three months of operating costs.

Building a buffer takes discipline, particularly when the business is consuming cash to fund growth. But treating the reserve as a non-negotiable line in your budget is one of the most important financial habits a growing business can develop.

“Building a buffer takes discipline, particularly when the business is consuming cash to fund growth.”

Know where your cash is going

It sounds obvious, but many growing businesses do not have a clear picture of where their cash is going.

A regular review of your cost base is a healthy habit. Not with a view to cutting everything, but with the discipline to understand what you are spending, why you are spending it, and whether it is working. Subscription services that were useful six months ago and are no longer used, headcount that was hired ahead of demand, or marketing spend that is not converting are all examples of cash leaving the business without sufficient return. In a growing business, these things accumulate faster than you expect.

When to bring in external support

There comes a point in most growing businesses when cash flow management outgrows the capacity of the founding team to handle it alongside everything else.

That’s the moment when bringing in senior financial expertise, on a fractional or part-time basis, becomes one of the highest-return investments a business can make. A good finance leader will build the systems that make the numbers reliable, identify risks before they become problems, and give founders and boards the financial confidence to make better decisions.

If your cash flow feels hard to manage, or if you are making decisions without the visibility you need, it’s worth addressing, as it won’t resolve on its own.

A final thought

Cash flow management is business critical. The good news is that the fundamentals are not complicated. Visibility, discipline, and a forward-looking mindset are the tools. The key part is maintaining them consistently while running a growing business, which is why having the right financial support in place matters.

If you’d like to learn how Pivotal Finance can help, let’s talk.