Improving cash flow management for startups

Key cash management priorities for startups

Effective cash management is crucial for startup survival and growth—especially in the early stages of a business.

As the founder, a common top priority includes protecting the capital you've worked hard to secure. This means focusing on low-risk investments, if that aligns with your business strategy, and maintaining a safety net for unexpected challenges. Another essential goal is to have three months of expenses saved in cash. 

Now, let’s get into the nitty gritty—the budget. Small and unnecessary expenses can add up over time, so even though it might be painstaking, keeping a close eye on your daily cash flow is crucial. Even profitable businesses can fail if they don't manage their cash flow well. Track your cash daily to anticipate shortfalls, and maintain a lean operation. 

Create a detailed budget outlining expected revenue and recurring expenses. Regularly review and update your financial projections so it’s accurate.

We’ve talked about conserving cash, which is critical. But, strategically investing in your company’s growth is also essential. A common goal is to strike a balance between saving and investing.

Setting up cash allocation strategies

An effective cash allocation strategy strikes a balance between yield-generating investments and insured deposits. 

This is the approach: 

First, keep a portion of your funds in FDIC-insured accounts for immediate operational needs. This is the cash that you use for day-to-day operations. The standard FDIC insurance covers up to $250,000 per depositor per bank. Some financial institutions offer expanded FDIC coverage through network deposit services. For instance, Rho Business Savings accounts make FDIC insurance a priority and cover up to $75M in deposits.

For excess cash beyond your immediate needs, consider allocating to low-risk, higher-yield options. Money market funds in highly liquid instruments—like U.S. Treasuries and government bonds with short maturities—are popular choices. At the time of posting this article, these offers yielded slightly above 4%¹.

Now, if you want to combine both—without getting a headache while you figure out multiple platforms—and you want to save time, you can lean on Rho. 

Rho is a prime example of how to optimize your cash and ensure safety and liquidity. You can allocate funds between yield-generating investments and FDIC-insured deposits (more on this below). 

This dual approach ensures that you don't need to manage multiple banking relationships or accounts manually—the platform handles the allocation seamlessly. This not only simplifies financial operations but also provides peace of mind that funds are protected and working efficiently for the business.

Using automation to improve cash management

Efficiency is key, especially when you seek to maximize your and your team’s productivity. Automation can improve your cash management approach and help you reduce the time you spend on your financials. 

Automation can take care of the (monotonous) tasks that take up your and your team’s valuable time. We’re talking about invoice generation, payment processing, and reconciliation. A big plus is that automation, in addition to saving time, is devoid of manual errors.

With Rho, you can set up invoice generation, payment processing, and reconciliation. Rho's platform also offers an automated cash application (which can match payments to open invoices accurately, reducing a lot of time), handles exceptions and deductions, and posts cash to the ERP system in real time. 

Organizing the finances seamlessly

By segmenting funds into separate accounts for specific purposes (e.g., payroll, taxes, and operating expenses), as the founder or CFO, you can gain clearer insights into cash allocation and ensure that funds are available when needed. 

This approach also helps to budget and forecast, as it becomes easier to track expenses and manage cash flow for different aspects of the business.

I mentioned earlier that you could strike a balance with your cash management by using Rho. Rho's platform includes both business checking and treasury accounts, so you can separate your operational funds from the capital that you’re setting aside.

The Rho Treasury service allows clients to invest non-operational funds into U.S. Treasury Bills, helping businesses earn yield on their excess cash. And, you can keep your day-to-day cash in your checking account. This segmentation helps to keep clear visibility into the different cash pools and optimize your overall cash management strategy.

Advanced financial tools

Now let’s talk about advanced tools to help you become even more efficient. Enterprise Resource Planning (ERP) integrations, expense tracking, and bill pay features are key to streamline operations. Let’s review each of these. 

ERP integrations

ERP integrations allow businesses to connect their financial data seamlessly with other operational systems, creating a single source. 

For example, Rho integrates with popular accounting software, such as QuickBooks and Xero, enabling real-time syncing of transactions, invoices, and payments. You don’t have to enter data manually. You’re thereby reducing errors and saving time so you can focus on strategic priorities rather than administrative tasks.

Expense tracking

Expense tracking tools are also key for cash management. With these tools, employees can easily upload receipts via mobile apps, and the software uses AI to extract key details and categorize expenses automatically. 

This not only saves time but also ensures compliance with company spending policies. Now, with Rho’s Corporate cards, you can monitor credit cards in real-time and have tighter control over spending. You can also set spending rules for different teams, creating smarter budgeting decisions from the get-go.

Bill pay systems

Bill pay systems automate the payment process for recurring bills and vendor invoices. These systems also offer features like tax compliance tools and centralized dashboards for managing vendor profiles. 

Rho's bill pay system is designed to streamline the entire accounts payable process, from invoice management to payment and reconciliation, helping startups save time and reduce manual data entry.

Security and compliance in cash management

You’ve invested a substantial amount of effort and time into raising capital and having positive cash flow—now make sure your funds are safe. Rho provides best-in-class security with two-factor authentication via Authy for every login, transaction, or new card. 

It also offers automated payment approval workflows for large transactions. You can also set up permissions for each user, from employees to the founding team.

How Rho is different from the rest

Rho was created with startup founders and teams in mind. The single most important resource is the team’s time. Every product and service that Rho offers is tailored for startups (and can even be customized). In addition to offering automated treasury management, expense tracking, and bill pay features, it has a user-friendly interface and seamless integrations with accounting and HR software. 

One more thing, Rho’s customer support is above par – you speak with real humans whenever you need. As your startup scales, so can your support from Rho. 

Optimize cash management with Rho

To maximize the benefits of Rho's cash management features, follow these five steps.

1. Regularly review and update cash flow forecasts
2. Set up automated alerts for low balance thresholds
3. Use Rho's reporting tools to learn about your spending patterns
4. Leverage integrations with accounting software (e.g., Quickbooks) for streamlined reconciliation
5. Take advantage of Rho's customer support (with live humans!) for help along the way

Wrap up

Effective cash management is crucial for your startup’s success, and Rho offers a robust platform to address your needs. By leveraging Rho's tools for automated treasury management, expense tracking, and financial planning, you can save time, reduce risk, and improve your cash flow management. 

Take Rho for a spin and see if it’s the right fit for your business. Reach out today to request a meeting with a business banking specialist.