Financial management skills are key to successful entrepreneurship, especially when you’re just starting out.

About 82% of all startups experience cash flow problems. No entrepreneur is denying the fact that poor cash flow is the biggest risk to their business. Financial challenges are a fact of life for every entrepreneur; this is not an issue here.

The problem is that many entrepreneurs don’t realize that, for example, poor cash flow is often a symptom of bad money management and not the source of their troubles.

To ensure your business will remain in good financial health, you need to understand what are the common underlying causes of cash flow issues and what you can do about them.

Set a Minimum Viable Budget

This is just another way of saying, “stay cheap.” As your startup grows, there will be a push and pull between being conservative with your spending and funding that growth. In times when you’re not sure what to do, staying conservative is the safest bet.

Setting a minimum viable budget is the way to go. As you should expect and prepare for hard times, you need a lean operating budget that will help you get through them.

Stay frugal even when times are good. If you don’t learn how to operate on a lean budget, chances are you won’t know how to save money when business gets tough.

Prioritize value streams over projects. Every step or action you take that provides a continuous flow of value to your clients or customers is a value stream.

For instance, purchasing inventory that is necessary for current production is one value stream. Other value streams may include activities focusing on faster project implementation, cross-selling, building partnerships, and projects that yield the highest returns.

Here are a few suggestions on how you can cut unnecessary costs:

  • If you are running a brick-and-mortar office, consider switching to a coworking space or entirely moving your business online;
  • Instead of hiring an entire pool of seasoned but expensive professionals, hire talented dynamic interns;
  • Use open-source and cloud software as an alternative to paid software;
  • Consider outsourcing some tasks to save on staffing cost and overhead, such as content marketing and SEO.

Have Cash Reserves

Could you manage the downturn financially if your business slowed down for 3 months? What about a year?

You need to think about how well-positioned you are for a prolonged period of a soft market, no matter how frightening this exercise seems to be. This is another thing your accountant can help you with.

If you conclude that you don’t have enough cash reserves to make it through a bad spell, start saving immediately. To make sure you have enough money in your reserve fund, it may be worthwhile to slow your startup’s growth.

Again, this is a scary and difficult exercise, and it may result in a bit of belt-tightening. But it can ensure the survival of your business when the going gets tough.

Separate Personal and Business Finances

If you are starting out as a sole proprietor, you already know that you and your business are not separate legal entities. But this doesn’t mean that you shouldn’t keep your personal and business finances separate. And this goes for any other business structure.

If you don’t separate your personal and business expenses, you’ll have a hard time applying for a loan. On top of that, preparing your income taxes will be a nightmare.

Open a separate bank account for your startup, and never use it for personal expenses.

Get Yourself a Good Accountant

If you are launching a startup for the first time, a DIY approach to business tax preparation and accounting is hardly a good idea.

As an entrepreneur, you are already wearing too many hats. If you can’t stay on top of accounting due to other responsibilities and projects, financial problems will start to accumulate.

The best way to protect your startup from such problems is to hire a smart, proactive accountant who will look at your finances with great rigor.

If you are a new entrepreneur, you can rest assured that your accountant will have the knowledge and areas of expertise you don’t. They will help you choose the right business structure, file taxes, comply with regulations, manage loans, etc.

Again, let’s say you are just starting out as a sole proprietor. If you don’t have much experience with taxes, you can easily fail to take advantage of many helpful tax deductions for sole proprietors. They can also tell you when is the best time for you to incorporate.

But let’s not forget, accounting isn’t just about taxes. A seasoned accountant can teach you a lot about a variety of financial matters, from financial planning and analytics to using software to automate invoicing.

Protect Your Credit Score

You never know when your business might need a loan. But, paradoxically, it will only get one if it doesn’t look like it needs one.

Debt isn’t necessarily a bad thing. For instance, a loan may help your company keep up with unexpected growth. To make sure you’ll be eligible for such a loan, protect your credit score.

Building a positive credit history starts with paying your bills on time. If you can repay suppliers and lenders early every time, even better.

This goes for your personal expenses as well. FICO, Experian, Equifax, and other business credit scoring models incorporate both commercial and personal credit data, so try to keep your personal credit intact.

However, all of this will help your business score only if your suppliers or lenders report your payment history to the credit bureaus. Confirm with lenders and suppliers that they will be reporting your good payment habits to the credit bureaus before you start doing business with them.

You can use a credit card to improve your credit score, but you must keep balances low compared to your credit limit and make at least the minimum payment on time every month.


Financial challenges for businesses are like taxes and death. There’s no escaping them. To be a successful entrepreneur, you need to prevent the ones that are avoidable and prepare for the ones that are always a possibility.