Handbook
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Finance & Operations
Cash Flow Management for Startups
Cash is oxygen. Here's how to manage cash flow so you never get caught short.
Profit and cash are not the same thing. Profitable companies can run out of cash. Loss-making companies can have strong cash positions. Understanding and managing cash flow is essential for survival.
Why Cash Flow Matters
Cash vs. Profit
Profit: Revenue minus expenses (accounting concept).
Cash: Money in your bank account (physical reality).
You can be profitable and out of cash:
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Customers pay slowly (high AR)
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Inventory ties up cash
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Equipment purchases consume cash
You can be unprofitable and cash-rich:
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Pre-collected annual subscriptions
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Recent funding round
•
Prepaid expenses
Cash flow reconciles the difference between accounting profit and actual cash movement.
The Survival Metric
You can survive losses with enough cash.
You cannot survive running out of cash.
Cash is the constraint that matters most.
Sources and Uses of Cash
Cash In (Sources)
Operating:
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Customer payments
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Refunds from vendors
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Interest income
Financing:
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Equity investment
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Debt (loans, credit lines)
One-time:
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Asset sales
•
Legal settlements
Cash Out (Uses)
Operating:
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Payroll
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Rent
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Vendors and suppliers
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Taxes
Investing:
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Equipment
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Deposits
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Investments
Financing:
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Debt repayment
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Dividends (rare for startups)
Cash Flow Timing
The Collection Challenge
For B2B with invoices:
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You perform service → Invoice sent
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Invoice sent → Customer pays (Net-30, Net-60, or late)
This creates accounts receivable (AR)—money owed to you but not yet collected.
Example:
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December revenue: $50,000 (invoiced)
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December cash from customers: $30,000 (from prior months’ invoices)
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AR grows: $20,000
High AR means cash is stuck. You’ve earned it but can’t spend it.
The Prepayment Opportunity
For subscription businesses:
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Customer pays annual contract upfront
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You recognize revenue monthly
This creates deferred revenue (cash you have but haven’t earned).
Example:
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Customer pays $12,000 for annual subscription
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Month 1 cash: +$12,000
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Month 1 recognized revenue: $1,000
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Deferred revenue: $11,000
Annual prepay improves cash flow dramatically.
Managing Cash Flow
Cash Flow Forecasting
Maintain a rolling 13-week (quarterly) cash flow forecast:
Week-by-week:
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Expected cash in (by source)
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Expected cash out (by category)
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Ending balance
Monthly:
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Projected P&L
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Expected cash impact
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Updated runway
Update weekly. Compare actual to projected.
Improving Cash In
Collect faster:
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Invoice immediately upon delivery
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Send reminders before and at due date
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Shorten terms (Net-15 vs. Net-30)
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Follow up on overdue accounts
Collect upfront:
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Require credit card on file
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Offer annual prepay with discount
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Charge for onboarding/setup separately
Get paid automatically:
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Credit card billing
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ACH auto-debit
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Reduce manual invoicing
Reducing Cash Out
Delay payments:
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Negotiate longer terms with vendors
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Use payment terms you’re given
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Don’t pay early unnecessarily
Reduce costs:
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Audit subscriptions monthly
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Negotiate with vendors
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Cut non-essential spend
Manage timing:
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Spread large purchases
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Time one-time expenses strategically
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Build cash before major investments
Working Capital Management
Working capital = Current Assets - Current Liabilities
Optimizing Components
Accounts Receivable:
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Lower is better (cash collected faster)
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Track AR aging (days outstanding)
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Follow up on old invoices
Accounts Payable:
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Higher is okay (using vendor credit)
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Don’t damage relationships
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Don’t pay late fees
Prepaid Expenses:
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Necessary but ties up cash
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Avoid annual prepays when you can pay monthly
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Unless discount justifies it
AR Aging Report
Track how old your receivables are:
Age
Amount
% of AR
Current
$30,000
60%
30 days
$10,000
20%
60 days
$5,000
10%
90+ days
$5,000
10%
Old AR is harder to collect. Focus attention on 60+ day accounts.
Cash Reserves
How Much to Hold
Minimum: 2-3 months of operating expenses as emergency reserve.
Comfortable: 6+ months, especially if revenue is variable.
Rule of thumb: More uncertainty = more reserve.
Where to Hold It
Operating account: Day-to-day needs.
Savings/sweep account: Earning some interest, still accessible.
Money market or T-bills: For larger reserves, slightly better returns.
Don’t chase yield at the expense of liquidity. You need the cash available.
Scenarios That Kill Cash
Growing Too Fast
Fast growth consumes cash:
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Hire ahead of revenue
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Marketing spend before revenue
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Inventory for demand that hasn’t materialized
Growth is good, but fund it.
Customer Concentration
One big customer = one big risk:
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If they pay late, you’re squeezed
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If they churn, you’re devastated
Diversify customer base.
Large Upfront Investments
Big projects that consume cash before generating returns:
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Platform migrations
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New product development
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Market expansion
Plan for the cash impact.
Unexpected Events
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Key customer churns
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Market downturn
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Team member departure requiring payout
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Legal issues
Reserves protect against surprises.
Cash Flow in Investor Reporting
What to Report
Monthly or quarterly:
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Beginning cash
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Cash from operations
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Cash from financing
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Ending cash
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Runway
What They Want to See
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Runway is adequate
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Burn is predictable
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You understand cash dynamics
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No surprises
Investors hate surprises. Be transparent about cash.
Emergency Measures
If cash gets critically low:
1.
Cut discretionary spend immediately
2.
Accelerate collections (call customers, offer discounts for early pay)
3.
Negotiate with vendors (extend terms, payment plans)
4.
Seek bridge financing from existing investors
5.
Consider revenue-based financing if you have revenue
6.
Reduce payroll (last resort but sometimes necessary)
Act early. The earlier you act, the more options you have.
Key Takeaways
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Cash ≠ Profit. Manage cash separately from P&L.
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Maintain a 13-week cash flow forecast, updated weekly
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Collect faster (terms, automation, annual prepay)
•
Delay payments where possible without damaging relationships
•
Hold 2-6 months of expenses as reserve
•
Track AR aging and follow up on old invoices
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Understand scenarios that consume cash (growth, concentration, investments)
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Report cash position to investors transparently
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Act early when cash gets tight—options shrink as cash shrinks
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