Cash Management for Small Businesses

Small businesses live and die by their cash management practices.

I’ve run my own business since 2012 and seen the inside of +100 small businesses. Time and time again I see it and feel it … you gotta be smart with $ or else you’ll run yourself into the ground.

As my good friend Brian Lofrumento says, most businesses fail not because people give up but because they run out of money.

Running out of money is a preventable problem.

Smart cash management is the solution.



I first wrote about intentional cash management in Get a Grip on Your Time and Money (Podcast Bonuses). Since then I’ve learned a few more tricks.

Remember my Money Tripper approach to cash management?

Version 1.0 – First list expenses/outflows in priority order, then track money as it comes in … my fancy spreadsheet would show how deep down the list of expenses you actually had cash on hand to cover. The approach forces prioritization of expenses and reveals how much (or how little) of those can be afforded in the present moment. A huge cash management hangup for a lot of businesses is spending money that’s not yet in hand. “Oh, we can pay for this once Project X comes in, and then after Dave pays us, we’ll be in a real good spot.” Then Project X doesn’t come in, and Dave goes out of business and you never collect. So your money is already spent, but the $ you planned to receive to cover it never came in. #Hosed.

Version 2.0 – Same concept, but a fixed % of every dollar of revenue that came in was stripped away and dedicated to saving up for taxes and saving up to make a donation to my church. So whenever I got $100, instead thinking the business had $100 to spend, my Money Tripper 2.0 took out a percentage for taxes and tithing, leaving more like $75 for the business to apply toward expected expenses.

Version 3.0 – What I’m sharing today.

Introducing … Profit First.

The Profit First approach to cash management for small business:


I’m so glad friends in YNAB Fans said something about entrepreneur and author Mike Michalowicz so that I could find Mike’s Profit First cash management method and the YNAB for Small Business group.


Cash Management for small business - the Profit First approach

Go ahead and get a copy of Mike’s book and lean on this summary:

(FYI there are add-on variations for contractors, e-commerce, micro gyms, dentists and tradies.)


[1] We are taught that profit comes LAST.

revenue – expenses = profit

First, you make money.

Then, you cover expenses.

And what’s left?

… that’s profit.

Our inherited/default psychology runs our businesses in this order.

[2] Things expand to the space allotted to them: Parkinson’s Law.

Small business owners make decisions on the fly.

We open our banking apps, look at $ in the bank or available credit on a card, and decide ON THAT whether to make a purchase.

We see it … we spend it.

[3] Expenses expand to all visible dollars, consuming 100% of revenue. There is no profit. 💸


Put [1] and [2] together and this is the outcome.

Cash management that sucks.

What if we flipped the profit order and used Parkinson’s Law to our advantage?

You can, and it will RADICALLY improve your cash management to keep expenses in check, grow your business and produce profits you actually realize and enjoy.

Enter … PROFIT FIRST.

[1 revised] Profit comes FIRST.

revenue – profit = expenses

First, you make money.

Then, you set some aside for profit.

And what’s left?

… that’s money available for expenses.

[2 revised] Things still expand to the space allotted to them, but we draw boundaries to how far they can go.


The crux of the Profit First method is to open at least 5 separate bank accounts (more later on why you might do more than 5):

  1. Income
  2. Profit
  3. Owner’s Comp (OComp)
  4. Taxes
  5. Operating Expenses (OPEX)

Deposit all revenue into Income: deposit checks there, have Stripe and Square deposit funds there, etc.

Once or twice a month, EMPTY the Income account into the other accounts.

How much will you put in each account? Chapter 4 lays out a process for determining that. The amounts will change each time as they are not fixed $ amounts, but percentages. Each of the 4 accounts (#2-5) have their own Target Allocation Percentage (TAP).

Every business is different, and Chapter 4 has an exercise to help you land on your TAPs.

The book has this table of benchmark TAPs by Real Revenue Range.

Cash Management for Small Business - Target Allocation Percentage benchmark from the book Profit First

[3 revised] Expenses expand to just visible dollars in OPEX, a smaller % of revenue. There IS profit.


Yes, this is like the Envelope Budgeting Approach applied to small business.

If you are running a business that doesn’t have a full-time bookkeeper, accountant and controller who can fill you in daily, then you need a cash management approach like this.



The best banks for Profit First

OK, so now that you’re onboard with this small business cash management approach … how on earth do you implement it??

If you are running a microbusiness, chances are GREAT that traditional big banks (Chase, Wells Fargo, US Bank, BoA) are not going to work for you. They have significant account minimums that would tie up precious working capital or monthly fees that eat away at your profit.

So what do you do?

Here are my favorite banks for small businesses that also make it easy to follow the cash management practices of Profit First:

[1] Brex

zomg. Love Brex.

Based in my home state of Utah.

Super clean interface.

Free ACH transfers – makes it mad easy to pay vendors.

No minimums.

No standing monthly fees.

FREE to open up to SEVEN accounts under one business … perfect for Profit First!

Each account has its own account number, so you can send and receive directly into these accounts if needed.

MAD easy to add as many cards as you need to give to contractors, employees, while also limiting their spending limits.

Can create virtual “vendor cards” in 5 seconds online. If that one card gets compromised, you can shut it down without having to reset card info for alllll your other vendors.

For US businesses only.

Use my link and get $250 after signing up.


[2] Novo

Novo is also part of the wave of new, online-first banks.

Also a very clean app, great features, and the option to create “Reserves” (up to 5 per account) for following the Profit First method.

Includes a tool to send and process invoices for free!

Bank with Novo


[3] Small Business Bank

“YOUR HOMETOWN BANK. WHEREVER YOU LIVE.”

I’ve been with SBB since 2013!

While Brex and Novo are more like startups with designers and developers making a slicker banking experience, SBB are first and foremost small business bankers. So their website and app are a bit clunky, but when you need to interact with a person who knows what’s up and is ready to offer premium service, they CANNOT be beat!

Similar to Novo and Brex, SBB has no minimums and no regular fees.

Service is and always has been amazing.

They allow up to four accounts (two checking, two savings) per business … and you can register more than one business under your individual log in. (Brex and Novo allow just one business per log in, so if you have multiple entities, you’d use a different email/login for each entity.)

www.smallbusinessbank.com




“You said earlier ‘at least’ 5 accounts … why?”

Thanks for the reminder.

If you run a product sales or resource-heavy business … it would also be smart to open (at least) two more accounts “on top” of the 5 noted above.

These would be:

  1. Gross Revenue
  2. Cost of Goods/Services Sold (COGS/COS)
  3. Income, aka Real Revenue
  4. Profit
  5. OComp
  6. Tax
  7. OPEX

COGS/COS would be … the price of inventory you buy to sell. The cost of raw materials used to make a product to sell. The cost of a temporary subcontractor to fulfill a project.

Managing your money this way will ensure you always have working capital.


Remember, there are industry-specific suggestions for additional accounts and Profit First adaptions in these these extension books. Profit First, for …

Regardless of what industry you’re in …

Starting TODAY, strive to have 3 months of working capital on hand. Then shoot for 6 months. Setting and accomplishing that goal will require significant changes to how you’ve been managing cash up to this point.


Adding Gross Revenue + COGS accounts also makes it SUPER easy to calculate gross profit margin (GPM), while the rest of the system makes it easier to calculate net profit margin (NPM). What’s the difference?

Business Success Rules of Thumb: 50% GPM and 10% NPM (see page 53).

In simple English this means:

  • If you sell something, you better sell it for DOUBLE what it cost you to make it (50%). You will spend at least 40% of the rest of what you brought in paying yourself, your staff, taxes, accounting, marketing, rent, etc.
  • If, after paying for ALL expenses (including your wages if you work in the business), your business doesn’t have at least 10 cents left over from every dollar brought in (10%), you might as well give up the business and work for someone else. The risk, in this case, is not worth the reward (profit). You’ll be better off putting your effort and money into another investment with prospects of better returns, or possibly running your work thru a nonprofit corporation with a public-serving mission instead.

While we’re on it … Mike’s advice is, “When in doubt, open an account!”


There is no end to the number of accounts you can open that will help improve your cash management strategy by clearly tucking $ away for specific purposes.



Was this helpful?

Let me know which new cash management habit you’ll adopt first.


Comment below, and definitely drop a link to your business so we can check it out and celebrate your success.

To your success … and profits 💰

By |2022-01-03T11:14:54-07:00November 22nd, 2021|Marketing|0 Comments

Get a Grip on Your Time and Money (Podcast Bonuses)

Welcome friends and listeners of my time and money episodes on The Wantrepreneur to Entrepreneur Podcast!

Brian is a good friend . . .

Time and Money - Podcast bonuses - Nat Harward and Brian Lofrumento

. . .  but enough of that.

Here are the FREE spreadsheets and tools I talked about.

Make copies and use them to help you create and adopt systems for getting a grip on your time and money.

▶ Ep 171: Time

▶ Ep 173: Money

JUMP TO:


[1] Tracking time

Use the Time Tracker for 3-6 months to establish your baseline for how much work you get done in a month.

After clicking the link to access (below) . . .

Log into Google Docs

Go to File >> Make a copy… (if you try to make a copy when not logged in, it won’t work)

Add your name to the file name

Choose the folder in your Google Drive for where to keep it

Check “Copy comments”

Press “OK”

==> Click Here to access the Time Tracker

Or find a time-tracking app that works for you.

I use Hours TogglTrack.


[2] Forecasting time

After using Time Tracker for 3-6 months to establish your baseline for how much work you get done in a month, have a go at the Time Forecaster.

Same as above, open the file and make yourself a copy

Go to File >> Make a copy…

Add your name to the file name

Choose the folder in your Google Drive for where to keep it

Check “Copy comments”

Press “OK”

Once you have your copy set up, click the down arrow on the “MONTHLY TEMPLATE” tab at the bottom, and select “Duplicate”

Then click the down arrow on the duplicate tab, and click “Rename…”

Change the name to something like “MAR 2018” or “APR18” or “18.05” … and then repeat the process until you have at least 6 months’ of tabs to work with.

==> Click Here to access the Time Forecaster

If you find a slick time forecasting app, tell me about it!

Just leave a comment below and include the name and/or a link.


[3] Tracking revenue

You want to know which people (clients) or items (products) are making you the most money! And … on what kind of schedule. Do this with the Revenue Tracker.

Same process as above to copy and make your own!

The Revenue Tracker complements the Money Tripper (below) with a little more detail on where exactly money is coming from. The Money Tripper is simply for tracking money once it lands. The Revenue Tracker will allow for better sorting and insights on revenue.

SIDEBAR: Yes. Eventually you want to upgrade from measuring just revenue to measuring profitability and margins so you can do the things that make you the most money, even after expenses. If you’re a service provider, straight revenue is a good start and then take that number and divide by hours tracked against it in your Time Tracker to see your real hourly rate by project/client/type of project.

==> Click Here to access the Revenue Tracker

Invoicing systems for getting paid faster (and easier) … hello Bonsai!

I’ve gotten checks in the mail (slow, paper isn’t super secure).

I’ve been paid by PayPal (30 cents + 2.9%).

I’ve been paid by credit card (30 cents + 2.9% or more).

And now my preference is bank transfers/ACH (just $5!).

I use Bonsai, a super awesome platform with several tools for freelancers:

  • proposals
  • contracts
  • invoicing
  • expense tracking
  • and more

Time and Money - get paid faster with Bonsai!

40,000 freelancers around the world use it. I recommend you check it out. Use this link to sign up and get a FREE month.

If your business is product-based or high-frequency in transactions, then you need an e-commerce solution. But if you’re billing monthly, bi-weekly or taking deposits and final project fees for high-ticket items and professional services, this is a great option.


[4] Managing cashflow

Use the Money Tripper to manage cashflow and stop spending money you don’t have or wondering whether you “really can” afford something.

Follow the same instructions above to make a copy for yourself of my Money TripperAfter.

Be sure to check “Copy comments” so you keep the instructions on how to use the sheet!

==> Click Here to access the Money Tripper

A more advanced tool is YNAB (You Need a Budget).

YNAB is designed primarily for personal budgeting, but you can have one budget for business and another for yourself. Just link your business accounts with your Business Budget and your personal accounts with your Personal Budget.

YNAB is built on the same principles the Money Tripper is built on:

  • spend only dollars you actually have and
  • every time you get a dollar, give it a job. Which, naturally is followed by
  • spend dollars only on the job you assigned them to.

Get a free month when you sign up for YNAB with my link.

PS If you haven’t done so already, open separate bank account(s) for your business.

It makes bookkeeping, taxes, and all that so much easier. You just don’t want to waste time muddling through personal expenses to find those that count as business expenses. I use Small Business Bank — no fees, no minimum balance requirements, they have an app for mobile check deposit and of course you get a debit card with your business checking account. To get started, that’s all you need.


Get a grip on your time and money!

Time is the ONE resource you can NEVER get back once you’ve spent it.

And you’ll succeed faster when the way you spend and invest money matches your priorities.

It’s easy for time and money to become “the tails that wag the dog.” But you’re the dog. You’re the boss. Be the boss. Take control.

I’ve shared these tools because they are the methods I followed to take control at a time of my life and business when I had it backwards … when I had lost all the freedom I wanted when I struck out on my own, and had become a prisoner to the business I had made for myself. But as I MADE IT, I could UNMAKE it. And REMAKE it. Which I did. And so have hundreds of entrepreneurs the world over.

So give yourself some grace in whatever has happened up to this point, and try these on (one at a time!) to start the process of remaking your business for the better.

Good luck!

Nat Harward

P.S. I’m here. Leave a comment below or send me a note and I’ll be touch.

By |2021-12-22T14:15:17-07:00February 23rd, 2018|Marketing|1 Comment