How to Handle Your Business Finances at Each Stage of Growth

Your business exists so you can get paid, but that can’t happen unless you effectively manage your business finances. We'll give you some pointers for each stage of your business' growth.

Few entrepreneurs realize when they start a business that managing finances in the startup phase is vastly different from managing finances for an established or growing business.

Each stage of business has a unique set of challenges and obstacles to deal with and overcome. So whether you’re just getting started or hitting the 10-year mark, here are tips for handling your business finances at every stage your business crosses.

working capital

Stage 1: Prior to Launch, Planning

Managing business finances begins before you open up for business or collect your first dollar of revenue. This stage is all about planning and budgeting. Whether you seek funding from a bank or investor, or plan to finance the startup out of your own savings, you’ll need to project revenues and plan for expenses.

Even though your business has yet to exist to the public, this can be one of the most difficult stages because it requires a lot of estimation. What can you reasonably expect to bring in per month and how much do you expect to spend? It’s better to underestimate revenue and overestimate expenses. That way you can be pleasantly surprised by better results.

Speaking of expenses, there are various types to consider when starting a business. Those include one-time expenses—such as money used to form the company or purchase essential equipment. Ongoing costs are paid on a regular basis and include such things as rent, utilities and business insurance. Ongoing expenses can also be fixed or variable. Fixed expenses, like rent, remain consistent from month to month. Variable costs go up or down depending on sales of your services.

Stage 2: Year One, Implementing Financial Infrastructure

Once you’ve passed the first-year mark, managing business finances is all about establishing a strong financial infrastructure. Truth is, many small business owners neglect their business finances in the early years. They’re too busy trying to prioritize a million other elements of getting the business profitable and don’t want the expense of hiring someone else to deal with it. This can be a mistake they’ll pay for in the years to come.

The good news is that most businesses don’t have a ton of financial activity in year one. You’re likely not paying hundreds of vendors or receiving direct deposits from hundreds of customers each month, so bookkeeping is fairly straightforward. If you get in the habit of setting aside an hour or two every week or month, you can successfully organize your finances and manage cash flow. Keep track of how much you collect, when you collect it, and from whom. Keep copies of all invoices sent and received and all receipts. You don’t need to maintain an actual paper trail. Electronic records are fine, as long as they’re properly backed up.

Cash flow should be your #1 priority at this stage of your business. Many small businesses fail in the first few years, and often it is because they did not manage their cash. One common problem is having too much cash tied up in receivables. Your business can look very profitable from a revenue standpoint, but if that revenue is tied up in receivables instead of in your bank account, you will have problems paying your bills and paying yourself.

That’s another reason you need to prioritize accounting for your business. When your books are a mess, billing is inconsistent and accounts receivables aren’t monitored, it’s easy to overlook missing payments. When your books and records are in good shape, you’ll be better able to see how much each customer owes you and stay on top of receivables to avoid—or at least minimize—cash flow issues.

Stage 3: Year Five, Growth and Establishment

If you’ve made it to year five, a congratulatory celebration is in order! Only about half of small businesses make it to five years. Your business is now in the growth and establishment phase. At this stage, you are probably generating a consistent income and your cash flow is somewhat reliable.

With income and cash flow relatively stable, you may be tempted to pay for large purchases with cash to save money on interest. But tread carefully. If large investments hurt your cash flow, it may be in your best interest to finance instead.

A good accountant can help you analyze the pros and cons of purchasing versus financing or leasing property and equipment. By the way, now is the time to make sure you have an accountant who is not only focused on compliance (filing tax returns), but on being a strategic partner in your business. Early in your business, there may not have been much discussion about minimizing tax liabilities, maximizing tax benefits and tracking Key Performance Indicators (KPIs). If you’re not already doing this, year five is definitely time to start.

Another challenge you face in this stage is dealing with increasing demands on your time and resources. If you haven’t already hired employees or started outsourcing non-primary business activities, such as accounting, recruiting and IT (unless that is your business).

Whether you hire or outsource, look for people with complementary skill sets. People have tendencies to hire others who are just like them. But success requires drawing on a broad range of strengths and talents. You need to hire people with skills that support your own.

Stage 4: Year 10, Broaden Offerings and Market

If your company is more than a decade old, then it’s really time to celebrate. Only about 4% of businesses survive past the 10-year mark. By now, your business is firmly established, and you may be interested in capitalizing on that stability by broadening your product or service offerings or entering into new markets.

This is good! However, you should never get too comfortable in business. If you’re not moving forward, you’re moving backward. But don’t expand carelessly. Look at your resources and work with your accountant to make realistic projections about the effort, cost and potential returns.

Managing debt is also crucial during the expansion phase of business. Borrowing makes sense for financing growth and expansion, but too much debt can strangle your business. Examine your company’s debt-to-equity ratio, which is long-term debt divided by equity. Lower ratios typically indicate that your business is well within its borrowing capacity and you can weather cyclical or seasonal downturns.  Keep in mind that this benchmark can vary widely by industry.

Your accountant can work with you to determine what’s acceptable for your business, whether you need to pay down debt or postpone borrowing. Never assume that a bank’s willingness to extend credit is proof that your business is in a good position to take on debt. Overzealous lenders may be looking more at collateral (assets the bank can seize if the loan isn’t paid), than whether your earnings can support debt payments.


Every stage of your business will bring new and pre-existing challenges. Solutions that worked at one stage may not be sufficient in another, which is why you should always be flexible and willing to adjust your business plan and operations. If you manage your business finances effectively in earlier stages, this will set the groundwork for future success and give you an accurate reflection of your current business finances. When you have real-time accurate financial information, you are better able to foresee upcoming challenges and make better business decisions. Good luck!

about the author

Freelance Contributor Janet Berry-Johnson is a CPA and a freelance writer with a background in accounting and insurance. Her writing has appeared in Forbes, Parachute by Mapquest, Capitalist Review, Guyvorce, BonBon Break and Kard Talk. Janet lives in Arizona with her husband and son and their rescue dog, Dexter. Outside of work and family time, she enjoys cooking, reading historical fiction and binge-watching Real Housewives.