Managing Working Capital for Growing Businesses

Updated on April 16, 2020
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Managing a business can be difficult, from setting up your payments system to finding the right kind of funding for your company to figuring out the best way to budget, but we’re here to help.

Many financial planners focus primarily on helping individuals plan their own money lives, like estate planning or talking about insurance, but others can apply that financial mindset around saving and planning for the future to small businesses. Lauren Lyons Cole is a Certified Financial Planner who has worked with a lot of small business owners and has become an expert at helping them figure out the best way to manage the flow of money in their businesses—and how to balance their business concerns with their own personal finances.

We spoke to Lyons Cole for rules of thumb to help you manage your business’s bank account so you can rest assured you have enough financial leeway for unforeseen circumstances like a slow month, equipment failure or a personal crisis. This leeway is officially known as “working capital,” or the money you use in your day-to-day operations. It makes sense that the less you have on hand, the more you risk cutting your expenditures too close to the bone.

Give Yourself a Three-Month Trial
If you’ve just started your company and don’t know offhand how much of your income you should earmark for operating expenses, Lyons Cole recommends tracking your spending for about three months. You should have a separate account and business credit card for your business operations, so you can look at your credit card or bank statement during this trial period to see your spending all in one place.

Deal With Quarterly Estimated Taxes
The IRS requires businesses to pay quarterly estimated taxes, and that applies to self-employed people, too. When thinking about a good baseline for your bank account, don’t forget to account for taxes. The simplest way to figure what you owe is to follow the estimates the IRS provides on the coupons they send in the mail. This amounts to paying 100% of the tax shown on the prior year’s return. (Here are the full rules.)

Reinvest in Your Business
Don’t feel guilty about redirecting money back to your company, because that’s the best way to grow—just make sure you’ve left some room for these expenditures when deciding how much working capital to have on hand at any given time. Reinvesting in your business can include saving up for new equipment, investing in marketing or hosting an event where everyone can see your products. Especially when you’re in a growth mode, you should consider reinvesting as much as 30% of your revenue, Lyons Cole says.

Prioritize These Various Obligations
Lyons Cole breaks down the order in which you should prioritize your income:

  1. Operating expenses like salaries, rent, supplies and any other overhead.

  2. Costs of reinvesting in your business, like upgrading your equipment, advertising, creating business cards or flyers, etc.

  3. Deductible expenses like health insurance, transportation or pre-tax retirement savings

  4. Quarterly estimated taxes

  5. Retirement (if you save in a post-tax account like a Roth IRA)

  6. Pay yourself!

  7. Repeat

At the end of the day, the goal of a business isn’t just to make money—it’s to earn enough and budget wisely so you can grow, expand achieve all of your big dreams. By keeping an eye on your working capital, you can make sure you get there.

Every other week, we’re excited to present finance and small business loan advice that helps growing businesses to thrive and succeed. Check out more from this column!

Allison Kade

Allison is a small business finance and lending columnist with Fundera. She's a writer specializing in finance, and her work has appeared in publications including Forbes,, Travel + Leisure, MSN Money, Yahoo Finance, The Huffington Post, Fox Business and more.
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