Cash flow isn’t sexy, but it’s the lifeblood of your startup. A lack of cash—not a lack of ideas—causes most startups to fail. Staying on top of your cash flow ensures you can cover expenses, invest in growth, and avoid sleepless nights. Let’s explore how to track and forecast cash flow, extend your runway, and dodge common mistakes.

How to Track and Forecast Cash Flow

Cash flow is about more than just knowing what’s in your bank account. It’s about understanding how money moves in and out of your business. Here’s how to stay on top of it:

Track Regularly:

Use tools like QuickBooks, Wave, or Xero to track income and expenses. Update your cash flow statements weekly or monthly to maintain an accurate picture of your finances.

Understand Your Cash Flow Statement:

A cash flow statement has three main parts:

  • Operating Activities: Day-to-day income and expenses.
  • Investing Activities: Purchases of assets or investments.
  • Financing Activities: Loans, investor funding, or debt repayments.

Pro Tip: Focus on operating cash flow to gauge your business’s health.

Forecast Cash Flow:

Create a cash flow forecast to predict your financial position in the coming weeks or months. Include expected revenue, fixed expenses (e.g., rent, salaries), and variable costs (e.g., marketing campaigns).

Example: Use spreadsheets or software like Float or Fathom to automate forecasts.

Monitor Payment Cycles:

Know when cash comes in (customer payments) and when it goes out (bills, salaries). Ensure your payment terms align with your cash flow needs.

Strategies for Extending Your Runway

When cash flow is tight, extending your runway can give you the breathing room to stabilize or grow. Here’s how to stretch your cash effectively:

Reduce Unnecessary Expenses:

Audit your expenses and cut nonessential costs.

Examples: Downgrade software subscriptions, renegotiate vendor contracts, or sublet unused office space.

Delay Large Purchases:

Avoid significant expenses until your cash flow improves. Consider leasing or renting equipment instead of buying.

Negotiate Payment Terms:

Work with suppliers to extend payment terms, allowing you to hold onto cash longer.

Example: Move from 30-day to 60-day payment terms if possible.

Improve Receivables:

Shorten your payment terms for customers to get paid faster. Offer discounts for early payments if it makes sense.

Pro Tip: Use invoicing tools with automatic reminders to reduce late payments.

Raise Additional Capital:

Explore bridge loans, credit lines, or equity funding to infuse cash into your business.

Tip: Be cautious about taking on debt unless you have a clear plan for repayment.

Common Cash Flow Mistakes and How to Avoid Them

  • Overestimating Revenue: Base your forecasts on realistic, conservative estimates.
  • Underestimating Expenses: Build a buffer into your budget to handle surprises.
  • Confusing Profit with Cash Flow: Remember, cash flow measures liquidity—how much cash you have on hand to pay bills—not just profitability.
  • Ignoring Seasonal Variations: Plan for slow periods and build reserves during peak times.
  • Not Prioritizing Payments: Pay critical expenses like payroll first. Negotiate payment plans for others.
  • Delaying Action: Regular tracking helps you spot problems before they become crises.

Your Next Step

Take 15 minutes to review your current cash flow. Ask yourself:

  • Do I know my monthly burn rate (how much cash I spend each month)?
  • When was the last time I updated my cash flow forecast?
  • Are there expenses I can cut or terms I can renegotiate to extend my runway?

Start by implementing one small change this week, such as negotiating payment terms or creating a cash flow forecast for the next 90 days.

Managing cash flow might not be glamorous, but it’s one of the most critical skills for a founder. By tracking your cash flow, extending your runway, and avoiding common mistakes, you can build a financially stable foundation for your startup.

Remember, a healthy cash flow isn’t just about survival—it’s about creating the flexibility to seize opportunities and grow.

Because at the end of the day, startups thrive when they can make smart financial decisions—and cash flow is where it all begins.