Consider this your crash course in cash flow management, complete with the tools and habits to stay ahead.
Understand startup cash flow fundamentals
A healthy bank balance—not your profit-and-loss statement—is what keeps your startup alive. Liquidity is the oxygen your business runs on: without enough of it, even a profitable company can suffocate. It’s why investors, lenders, and smart founders obsess over cash on hand before they care about accounting profit.
Profit versus cash—why the difference matters
Profit is an accounting construct. Cash is the real thing. You can be “profitable” in theory and broke in practice—a SaaS company with a year’s worth of prepaid subscriptions booked as revenue but no actual cash left to make payroll. Money in motion is what matters, because it’s what pays the bills. And the data backs it up—82% of businesses fail due to poor cash flow, not lack of profit.
The takeaway? If you’re only tracking profitability, you’re flying blind.
Common cash flow challenges for high-growth startups
Growth solves a lot of problems—but it can also create new ones, fast. The further you scale, the more moving parts there are to track, and the harder it gets to keep your cash position steady. Common trouble spots include:
Lumpy sales cycles that bring in big payments one month and little the next.
High customer acquisition costs (CAC) that tie up capital before revenue catches up.
Delayed receivables that leave you covering expenses for weeks—or months—before getting paid.
Scaling payroll as you hire ahead of growth.
Overspending on inventory in anticipation of demand that doesn’t arrive as quickly as expected.
When every dollar has a job, it’s easy for spending to outpace incoming cash. One way to keep sight of where the money’s going: Relay1 offers 20 checking accounts, making it simple to separate funds by cost center—so you know what’s committed and what’s actually free to spend.
How much runway do you really have?
Runway is the number of months your company can keep operating before the cash runs out—and it’s one of the most important numbers a founder can know. The math is simple:
Runway (months) = Current cash ÷ Average monthly burn
If you’ve got $900,000 in the bank and you’re burning $75,000 a month, you’ve got 12 months before you hit zero. In today’s funding climate, most investors recommend keeping at least 12–18 months of runway on hand to weather delays in revenue or fundraising.
Measure health with the right cash flow metrics
Consistent tracking turns cash flow from a guessing game into a set of decisions you can make with confidence. The key is knowing which numbers actually matter for your business model—and reviewing them regularly.
What are the key metrics for cash flow health?
A few metrics can tell you most of what you need to know:
Operating Cash Flow (OCF) = Cash from operations ÷ Total revenue. Positive OCF means your core business is generating more cash than it’s consuming.
Free Cash Flow (FCF) = OCF – Capital expenditures. The higher this is, the more flexibility you have for growth or reserves.
Gross Margin = (Revenue – COGS) ÷ Revenue. High margins give you more cushion against fluctuations.
Working Capital = Current assets – Current liabilities. Positive working capital means you can cover your short-term obligations.
Benchmarks: SaaS companies often target 70%+ gross margins, while ecommerce may operate in the 30–40% range. Whatever your model, review these metrics monthly. Relay’s real-time dashboard makes it easy to keep a clear view of your cash position—so you always know where you stand before running the numbers.
Burn rate and runway explained
Burn rate measures how quickly you’re spending cash. There are two flavors:
Gross burn – Total cash outflows each month.
Net burn – Cash outflows minus inflows each month.
If you’re spending $150,000 a month (gross burn) but bringing in $30,000 in revenue, your net burn is $120,000. Knowing both numbers helps you understand whether you can cut spending, grow revenue, or both to extend your runway.
Pairing burn tracking with runway calculations (current cash ÷ net burn) is essential—you’ll know exactly how much time you’ve got before you need more cash.
Cash conversion cycle and working capital ratio
The cash conversion cycle (CCC) measures how long it takes to turn investments in inventory or services into actual cash.
CCC = Days inventory outstanding + Days sales outstanding – Days payables outstanding
A shorter—or even negative—CCC is healthier, because it means you’re collecting cash before you have to pay your suppliers. SaaS companies with prepaid subscriptions often enjoy a negative CCC, giving them more flexibility to reinvest quickly.
The working capital ratio (current assets ÷ current liabilities) tells you whether you can cover short-term obligations. A ratio above 1 generally signals good liquidity; below 1 can mean you’re at risk of running short. Monitor both metrics monthly using your accounting software synced to your bank accounts—Relay ensures those bank feeds stay accurate and up to date.
Build an airtight cash flow forecast
Forecasting is the GPS of financial decisions: it doesn’t just tell you where you are, it shows where you’re headed. And the more accurate—and regularly updated—your forecast, the better you can steer.
How do I forecast cash flow as a startup?
Start with a simple, repeatable process:
Gather historical data on revenue, expenses, and funding.
Map fixed and variable costs so you know which expenses move with sales.
Project revenue scenarios based on realistic growth rates.
Layer in funding events like equity raises or loans.
Validate assumptions by comparing past forecasts to actual results.
For SaaS forecasting, AI-driven tools like Drivetrain.ai can speed up the process and spot patterns you might miss. The goal is to move from guesswork to informed decision-making—a discipline that pays off when cash gets tight.
Setting time horizons and scenarios
Think in layers:
Short-term – 13-week forecasts to manage immediate obligations.
Medium-term – 12-month forecasts for budgeting and hiring.
Long-term – 3-year forecasts for strategic planning.
Each should include at least three scenarios: base case, best case, and worst case. According to JPMorgan, 52% of midsize businesses use scenario planning to prepare for uncertainty—it’s a habit worth adopting early.
Updating and stress-testing your model
A forecast only works if it reflects reality. Update it monthly, or weekly if your cash position is volatile. That way, you’ll catch problems early enough to do something about them.
Quick stress tests can help you see how resilient your plan really is:
Revenue drop: What happens if sales fall 25% for three months?
Expense spike: Could you handle a sudden 20% jump in costs?
Delayed funding: How long can you operate if an expected investment comes in six months late?
Relay’s CSV exports plug directly into Excel or FP&A tools, making it easy to refresh your model without rekeying numbers.
Automate tracking and cash allocations
Automation frees founders from living in spreadsheets. It keeps your data fresh, your accounts in order, and your time focused on actually running the business.
What’s the best way to track cash flow in a small business?
Connect your business bank, accounting platform, and forecasting tool via APIs so data flows automatically. Relay syncs to QuickBooks and Xero in seconds, ensuring your accounting software always reflects your latest balances. Review bank feeds daily, capture receipts as you go, and you’ll spend far less time cleaning up at month-end.
What tools help automate cash flow management?
Tool | Core Features | Pricing | Standout Automation |
Relay | 20 checking accounts, auto-transfer rules, bill pay, payment links | No hidden fees or minimum balances | Multiple accounts + automated allocations |
Brex | Corporate cards, spend controls, rewards | Varies by usage | Real-time expense categorization |
FreshBooks | Invoicing, expense tracking, basic reports | Monthly subscription | Automatic recurring invoices |
Drivetrain.ai | Forecasting, scenario modeling, integrations | Custom pricing | AI-driven cash flow forecasts |
Relay stands out for combining banking, payments, and automated cash allocations in one place—with no hidden fees eating into your balance.
How do I set up automatic cash allocations?
A simple allocation system can turn messy finances into clear buckets of cash you can actually manage. Here’s one approach:
Create destination accounts—profit, tax, operating expenses, and any other key categories.
Choose allocation percentages based on your priorities.
Schedule twice-monthly rules to move funds automatically.
Monitor your dashboard to confirm everything’s flowing as planned.
Relay’s official Profit First partnership means you can set these rules once and let them run in the background. Funds are FDIC insured up to $3M through our banking partner, Thread Bank3.
Put proven strategies into action
Small tweaks to how you handle cash can add months to your runway.
Accelerate receivables and tighten billing cycles
Send invoices immediately, not in batches. Offer early-pay discounts—2% off for payment within 10 days can move cash in faster than Net 30 terms. And set up automated reminders to chase down overdue bills. Unpaid invoices currently tie up $825 billion in small-business capital; closing that gap can be a growth engine. Relay’s payment link feature (ACH & wires) makes it easy for customers to pay you directly.
Control outflows—smart payables, inventory, and subscriptions
Batch payments to improve predictability and reduce transaction overhead. Negotiate longer terms with vendors where possible. For discretionary expenses, issue virtual cards with strict spend limits. Audit your software stack quarterly—many startups waste thousands on unused subscriptions. Relay’s granular card controls give you the visibility and limits you need to curb overspending.
Build a cash reserve and earn interest without locking funds
Aim for 3–6 months of operating expenses in a separate high-yield savings account. If your business is capital intensive, stretch that to 12 months.
Frequently asked questions
How large should my emergency cash reserve be? Aim for 3–6 months of operating expenses; capital-intensive startups may need 12 months for added security.
How often should I revisit my cash flow forecast? Update your forecast monthly—or weekly if cash balances drop below three months of burn—to stay ahead of surprises.
Which bank features make Profit First easier? Multiple checking accounts with no hidden fees, automated percentage-based transfers, and real-time balance alerts streamline Profit First allocations.
1 Relay is a financial technology company and is not an FDIC-insured bank. Banking services provided by Thread Bank, Member FDIC. FDIC deposit insurance covers the failure of an insured bank. Certain conditions must be satisfied for pass-through deposit insurance coverage to apply.
3 Your deposits qualify for up to $3,000,000 in FDIC insurance coverage when placed at program banks in the Thread Bank deposit sweep program. Your deposits at each program bank become eligible for FDIC insurance up to $250,000, inclusive of any other deposits you may already hold at the bank in the same ownership capacity. You can access the terms and conditions of the sweep program at https://thread.bank/sweep-disclosure/ and a list of program banks at https://thread.bank/program-banks/. Please contact customerservice@thread.bank with questions on the sweep program. Pass-through insurance coverage is subject to conditions.
