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Tactical tips for managing your startup’s cash flow


Good financial hygiene and spending habits will strengthen your odds of success

As he stood on stage in New York next to former President Bill Clinton, Taylor Scobbie thought he had it made. His startup had just won the Hult Prize, which recognizes outstanding social enterprises. The $1 million in prize money came with only one stipulation: use it to build a for-profit-for-good business that contributes to solving one of the world’s toughest problems.

Scobbie was already working on a vision to buy, roast and sell direct origin coffee beans from farmers in fragile regions of the world, then send a sizeable percent of the sales proceeds back to them. Today his company, IMPCT, sells the high-end coffee to corporate clients in the Bay Area.

Unfortunately, the $1 million Hult grant came with no guidelines, no board, no shareholders and no accountant. And IMPCT’s untested team knew nothing about managing cash flow.

“Cash management in the early stages is one of the hardest things"

“As CEO of a startup, you are running around doing a million and one things, and some things suffer,” Scobbie says. He adds, “We spent a couple of years not running the business optimally because we didn’t have investors pushing us in the right direction.” IMPCT now has investors and a board — and positive cash flow, in part because they nailed their cash management.

No one said it’d be easy

While few entrepreneurs have the good fortune of landing $1 million with no strings attached, IMPCT’s challenges are by no means unique. “Cash management in the early stages is one of the hardest things,” says Amy Kux, who has held senior accounting and finance positions at Bay Area startups for nearly two decades and is now CFO of Unbabel.

As a startup, cash is your lifeblood. The longer you can make it last, the better. Yet we see many startups that seem to manage cash flow by the seat of their pants. The result can be chaotic, with startups running dangerously low on cash, forcing founders to go without pay, dip into their savings or draw on their personal credit cards.

Here are some ideas on how to manage your company’s cash more wisely.

Know where your cash goes every day

A good way to start is by keeping your books organized to get a sense of whether your company is hitting its financial plan. A critical part of that is to keep the books current — reconcile them every day if you can.

Daily add-ups at a small startup may not always be realistic, says Olivia Balboa-Lopez, CFO and co-founder at IMPCT. “A lot of what we do is look back and learn how to do it better,” she says.

“Messy books will not reflect well on your business savvy”

Regardless, good record-keeping isn’t just about keeping chaos at bay. Messy books will not reflect well on your business savvy when potential investors begin to do due diligence on your startup.

Use credit cards — responsibly

Credit cards have become a popular and powerful tool in managing startup cash flow. But before you apply for any old card, consider your own commercial bank and their credit card options.

“Find the right banker,” says Kux. Once they get to know you, they are often more willing to help you now and down the line if, for instance, you are running low on cash.

As a founder, it’s natural to put the company’s first credit card in your name, but make sure you understand the fine print. Some cards require personal guarantees from the holder. As a result, you may be liable for unpaid charges, rack up late fees and find that your credit rating takes a hit. You’ll be better off with a card that doesn’t require personal guarantees so you won’t face such risks.

Establish spending habits and rules

Once you have a card and bank account, decide who gets what access and privileges. Establish a “spend culture” that lays out rules for card and check use — and consequences for breaking them. Measures like having a primary administrator, requiring dual authorization for certain expenses and having separate accounts for payables and receivables can help prevent fraud.

Require receipts from vendors and employees. Consider routing credit card points into one account so you can easily use them where you need them most. Make sure your cards include travel benefits, purchase protection and fraud protection.

Without such discipline, accounting and tax preparation will turn into a headache. You don’t want to be in a position of figuring out who spent what and whether a purchase was a business expense or not.

Pay late, bill early

Credit cards, of course, are great cash management tools that allow you to postpone payments. You can pay in July or even August for an expense — say, your AWS bill — you incurred in June at no extra cost, if you pay your balance in full. You can achieve similar results by negotiating payment terms — say, 10% cash up front, then net-30 or even net-60 on the balance — with your vendors.

And of course, lean heavily on the “free” version of the countless “freemium” services that can help you run your business, from Asana to Dropbox, G Suite and SurveyMonkey.

The flip side of late payments are early invoices — so bill your customers as soon as you can. For a subscription business, a good way to accelerate cash flow is by offering deals. If your product costs $100 a month, consider charging just $1,000 a year for those who pay upfront, so the cash gets in the door fast.

Revenue, revenue, revenue

Founders understand that getting customers to pay for their product is the best way to ensure they don’t run out of cash. And yet, many startups seek to entice new customers with free trials. That won’t put cash in the bank. And since anyone may try something that’s free, it won’t give you an indication as to whether your product will actually sell in the market.

“Many startups seek to entice new customers with free trials. That won’t put cash in the bank”

A better approach is to charge customers a small fee to take part in a test and offer them a big discount if they end up purchasing at the end of a trial period. If they’re willing to pay, it’s usually a sign that you have a good product. It’s also likely to be an important validation point for prospective investors. Of course, if you can manage to have customers pay in full, as IMPCT is doing, you’re much better off.

How low is too low?

There’s another critical benefit to keeping your books in order: it will give a clear view into how much runway you have. You can use that knowledge to overlay milestones — time to a minimum viable product, time for piloting test with customers, time to fundraise — and get a sense of where you stand.  

As you go through that process while your startup burns cash, you’ll be faced with a key question: how low should you go? Kux says the main frame of reference to answer that question is your employees. They’re your startup’s top expense and its biggest asset.

“Employees are your startup’s top expense and its biggest asset”

So think about it in terms of payroll. When you have six months' worth of payroll, you should be talking to investors, Kux says. And dipping below half of that is likely irresponsible. “You need to have three months of payroll, at least, set aside,” Kux says. That’s in part because executives and board members have a fiduciary responsibility to cover payroll if there’s the potential that you will need to do layoffs or shut down altogether.

And remember, that’s when that good relationship you have established with your bank may translate into a loan to keep you going.

Be mindful of the caveats in outsourcing

The reality of startup life is that many founding teams don’t have the time or wherewithal to deal with day-to-day cash management. Fortunately, there’s a long list of services that can help you. They range from bookkeepers to outsourced CFOs.

While useful, Kux says it’s important to understand their shortcomings. “A lot of times founders will get basic bookkeepers and then they will hire a consulting CFO to do these business plans,” she says. “But the business plans are full of crap because the CFO-type never got to know the business. So they're just putting numbers on a piece of paper and think they can apply to any business.”  

“Founders must make sure their outsourced accountants really understand what the business does”

Kux saw this firsthand at a gaming startup. The outsourced finance pros who managed the accounts before she joined ran a single P&L, never bothering to break out numbers by game. As a result, the company couldn’t distinguish between money-making and money-losing games. Founders must make sure their outsourced accountants really “understand what the business does and explain how they will help,” Kux says. 

The Takeaway: Cash is your lifeblood; manage it wisely

As you run at full speed to get your startup going, don’t make the mistake of treating cash flow as an afterthought. Taking time to develop clean books, strong banking relationships, sensible checks and balances and wise spending habits may seem like a distraction. But adopting discipline now will help extend your runway and bolster your chances of success.

Startup founders tend to be business visionaries or tech whizzes — not finance and accounting experts. While they’re naturally laser-focused on turning their ideas into products, they should not ignore the nitty-gritty details of how cash flows in and out of their companies.

These tactical tips from founders and finance pros will help you keep on top of your dollars and cents, and make the most of your startup funding.


The views expressed in this column are solely those of the author and do not reflect the views of SVB Financial Group, or Silicon Valley Bank, or any of its affiliates. This material, including without limitation the statistical information herein, is provided for informational purposes only. The material is based in part upon information from third-party sources that we believe to be reliable, but which has not been independently verified by us and, as such, we do not represent that the information is accurate or complete. You should obtain relevant and specific professional advice before making any investment or other decision. Silicon Valley Bank is not responsible for any cost, claim or loss associated with your use of this material.

About the Author

Liam Fairbairn is a senior vice president in the Early Stage Practice for SVB in the San Francisco Bay Area, where he specializes in serving seed-stage technology companies in the enterprise software, consumer internet and frontier tech sectors. As a relationship manager, he delivers the fast and flexible banking solutions innovators demand. As an advisor, he strives to be each client’s first point of contact when they’re looking to connect with value-add partners in the tech ecosystem who can help entrepreneurs set visionary ideas in motion.

Liam thrives on being at "the tip of the spear" — witnessing game-changing breakthroughs before they impact the world. He’s savored this vantage point again and again throughout his 20-plus years at SVB. While working on a team focused on infrastructure software, he advised tech companies as they transitioned from hardware to cloud-based information delivery. Liam previously partnered with equally groundbreaking entrepreneurs, including life science visionaries in the medical device, biotechnology, diagnostics, nanotechnology and healthcare IT sectors. He holds a bachelor’s degree in finance from Santa Clara University, where he was awarded a scholarship and played Division 1 baseball for the Broncos all four years. Liam also has the distinction of finishing his college career ranked No. 22 in the country by Baseball America in 1997.

Outside of work, Liam currently serves on the board of the San Carlos American Youth Soccer Organization (AYSO) and coaches Little League baseball and softball. He also enjoys life at home in his native Bay Area with his wife and two children, and spends as much time as possible outdoors, especially in Hawaii where he has a large contingent of family. However, Liam feels quite at home at SVB, too, as his sister, wife and sister-in-law all work for the bank.

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