Cash Management Between Funding Rounds: Practical UK Startup Guide to Extend Your Runway

Cash Management Between Funding Rounds: A Practical UK Startup Guide

The funding has landed in the bank. The relief is tangible, but it is quickly replaced by a new kind of pressure. That capital is not a prize, it is fuel. For many founders, the most critical challenge now is how to manage startup cash flow between funding rounds to ensure you reach your next milestone before the tank runs empty. This is the moment when operational discipline becomes just as important as the vision that secured the investment.

Founders often face the same set of recurring challenges: misjudging their true runway, struggling to cut costs without harming growth, and getting caught out by the timing of large payments like payroll and HMRC taxes. Effective financial stewardship is what separates the startups that thrive from those that scramble from one crisis to the next.

This guide provides a framework for practical, step-by-step financial planning between rounds, focusing on the realities of running a UK startup without a full-time finance team. It is about building a robust system for liquidity planning for founders that moves you from reactive fire-fighting to proactive control. By mastering these principles, you can extend your runway and build a more resilient business.

Step 1: Gaining True Visibility: How Much Runway Do You Really Have?

Many founders ask, “My bank balance divided by my monthly spend is my runway, right?” It’s a dangerously simple calculation that often leads to a cash shortfall. Your bank balance is not your runway, and a simple average of past spending fails to accurately predict future needs. True visibility requires a forward-looking forecast, not a backward-looking average.

Distinguish Your Bank Balance from Your Cash Runway

The first step is to understand the difference between the number in your bank account today and the actual cash you have available to spend over the coming months. The key concept here is your Net Burn, which is the total cash going out minus the total cash coming in over a specific period. This is more insightful than a simple average burn because it accounts for revenue and other cash inflows, giving a more accurate picture of how quickly you are consuming capital.

Build a 13-Week Cash Flow Forecast

What founders find actually works is building a 13-week cash flow forecast. Think of it as a rolling 3-month window into your bank account. Why 13 weeks? It is a standard quarterly period that is short enough to be highly accurate but long enough to spot upcoming cash crunches, like a large VAT payment or an annual insurance premium. This forecast is the foundation of all effective UK startup budgeting.

The reality for most pre-seed to Series B startups is more pragmatic: a well-structured spreadsheet in Excel or Google Sheets is perfectly sufficient. You do not need expensive software at this stage. Tools like Float or spend management platforms like Pleo can add value later, typically at Series A or B, when the volume of transactions increases significantly.

Your forecast should map out all anticipated cash inflows and outflows on a weekly basis. Be specific. Inflows are not just customer payments; they could be grant funding, an anticipated R&D tax credit, or director loan repayments. Outflows include the big three: payroll, marketing, and infrastructure costs, but also supplier invoices, software subscriptions, and crucial HMRC payments.

A dynamic forecast reveals insights that a simple average hides. For example, a simplified model might show:

• Opening Balance: £250,000
• Week 1: A £10,000 customer payment comes in, but £25,000 goes out for payroll. The net cash flow is negative £15,000, reducing your balance to £235,000.
• Week 2: A quiet week with only a £5,000 rent payment, bringing the balance down to £230,000.
• Week 3: A quarterly VAT payment of £12,000 is due to HMRC, causing another significant dip to £218,000.
• Week 4: A much-anticipated R&D tax credit of £40,000 arrives. After an £8,000 marketing spend, your net cash flow for the week is a positive £32,000, bringing your closing balance back up to £250,000.

This forecast immediately highlights the difference between a simple burn rate and a dynamic cash flow. It forces you to plan for lumpy payments and makes your runway calculation real. From here, you can model three runway scenarios: your baseline plan, an extended runway plan with defined cost reductions, and a zero-cash plan showing what happens if all revenue stops tomorrow. This exercise provides the clarity needed to make strategic decisions.

Step 2: Slowing the Burn: How to Cut Costs Without Breaking the Business

Once you have clear visibility of your cash, the next challenge is extending your runway. This leads to the difficult question: how do I decide what to cut when everything feels essential for growth? Effective burn rate reduction strategies are not about slashing budgets indiscriminately but about making surgical, strategic choices that buy you time without sacrificing critical momentum.

Adopt the ‘Pause, Not Cut’ Framework

The most valuable framework is ‘Pause, Not Cut’. This approach makes a critical distinction between reversible and irreversible decisions. Cutting headcount is largely irreversible and can be deeply damaging to morale and momentum. For guidance on planning and modelling headcount changes, you can review the Team Reduction Cash Impact. In contrast, pausing a new marketing channel, delaying a non-critical feature build, or renegotiating a software contract are reversible decisions. You can always switch them back on when cash flow improves or the next funding round closes.

Categorise Expenses: ‘Need to Have’ vs. ‘Nice to Have’

Start by categorising all expenses into ‘Need to Have’ versus ‘Nice to Have’. This requires brutal honesty. A ‘Need to Have’ is something that directly drives revenue, is required for regulatory compliance, or is fundamental to your product’s core function.

For a B2B SaaS startup, a ‘Need to Have’ might be achieving specific security certifications. As a matter of fact, compliance standards relevant to startups selling to enterprise include SOC 2 and ISO 27001. Failing to invest here could block major deals. For a Deeptech or Biotech startup, the essential R&D to hit the next scientific milestone is a clear ‘Need to Have’. For an e-commerce business, it is the cost of goods sold and essential fulfilment infrastructure.

A ‘Nice to Have’ might be a top-tier PR agency, a larger office space, or elaborate team offsites. These things are valuable but do not directly enable the business to survive or grow in the short term. The pattern across early-stage startups is consistent: founders often overestimate how many of their expenses are truly ‘Need to Have’. This analysis is a core part of managing startup expenses UK founders must master.

Focus on the ‘Big Rocks’ First

To make a meaningful impact, focus your efforts on the largest expense categories first: headcount, marketing, and infrastructure.

• Headcount: Before considering layoffs, implement a hiring freeze. Evaluate using fractional contractors or specialist agencies for roles like finance or marketing instead of committing to full-time hires with associated costs like National Insurance and pension contributions.
• Marketing: Scrutinise your cost of customer acquisition (CAC) for each channel. Pause expensive, low-return experiments and double down on what works. Can you shift focus to organic channels like SEO or community building that require more time than cash?
• Infrastructure: Review your cloud computing bills from providers like AWS, Azure, or GCP. Are you paying for idle resources? Similarly, audit your software subscriptions. Are you paying for user seats you do not need? For essential tools, switching to annual billing can often secure a 10-20% discount.

Step 3: Mastering Your Cash Cycle: Making Every Pound Work Harder

“My profit looks okay, but my bank account is always tight. Why?” This common founder frustration highlights the critical difference between profitability and cash flow. Profit is an accounting concept recorded when revenue is earned or an expense is incurred, as dictated by standards like FRS 102 in the UK. Cash flow is the operational reality of money moving in and out of your bank account. A profitable company can run out of cash if its customers pay slowly while it has to pay its suppliers and staff quickly.

Accelerate Receivables and Manage Payables

Mastering your cash conversion cycle is about making every pound work harder by managing the timing of receivables (cash in) and payables (cash out). This is one of the most effective startup cash flow strategies available.

First, focus on accelerating your receivables. For SaaS businesses, can you offer a small discount for annual upfront payments instead of monthly billing? For professional services firms, can you require a 50% deposit before work begins? For e-commerce companies, ensure your payment processor, like Stripe, has a short settlement period. The goal is to get cash into your business as fast as possible.

Second, manage your payables strategically. This does not mean failing to pay your bills, which can damage crucial supplier relationships. It means using the full payment terms offered. If a supplier gives you 30-day terms, use them. In your cash flow forecast, schedule payments for their due date, not the date you receive the invoice. This is about timing, not just amounts. Coordinate your large outflows so they do not all hit in the same week.

Plan for Your HMRC Liabilities

For any UK startup, the most significant and immovable payables are to HMRC. Mishandling these can trigger cash crunches, penalties, and intense scrutiny. Key payments to forecast include:

• PAYE/NI: Remember that HMRC PAYE/NI payments are due by the 22nd of the month following the payroll run. This is a significant, regular outflow that must be planned for.
• VAT: It is crucial to understand that the VAT you collect from customers is not your money. You are holding it in trust for HMRC. The standard UK VAT rate is 20%. When you run a VAT return in your accounting software, such as Xero, set that cash aside in a separate bank account immediately. This simple discipline prevents you from accidentally spending the tax man’s money and ensures you can always meet your payment obligations.

Leverage R&D Tax Credits for Non-Dilutive Funding

Another powerful lever, especially for UK-based Deeptech and Biotech startups, is leveraging R&D Tax Credits. This government scheme is a vital source of non-dilutive funding that rewards investment in innovation.

Critically, an HMRC R&D tax credit cash payment typically arrives 4 to 8 weeks after a clean claim submission. Because this timeline is relatively predictable, it can be a significant inflow to include in your 13-week forecast. Furthermore, specialist lenders offer R&D tax credit financing, providing you with a loan against your anticipated credit. This can be a valuable liquidity option to bridge a cash gap while you wait for the payment from HMRC, turning a future asset into present-day cash.

Practical Takeaways for Extending Your Runway

Successfully managing your cash between funding rounds comes down to discipline and visibility. It is not about complex financial theory but about practical, consistent execution. Your goal is to extend your runway without sacrificing the momentum needed to hit the milestones that will attract your next round of investors.

Here are the key actions to take now:

1. Build Your 13-Week Forecast: Ditch the simple burn rate calculation. Create a rolling weekly forecast in a spreadsheet, mapping out all expected inflows and outflows. This is the single most important tool for liquidity planning and the foundation of all good financial planning between rounds.
2. Adopt a ‘Pause, Not Cut’ Mindset: Before making irreversible cuts like layoffs, identify all non-essential expenses that can be paused. Categorise every line item as a ‘Need to Have’ or a ‘Nice to Have’ to guide your burn rate reduction strategies.
3. Master Your Cash Cycle: Actively manage your receivables and payables. Invoice promptly, offer incentives for early payment, and use the full payment terms your suppliers give you. This simple discipline can create significant breathing room.
4. Ring-fence HMRC Cash: Treat VAT collected and PAYE/NI deductions as liabilities from day one. Move the funds to a separate bank account as soon as they are calculated. This simple action prevents nasty surprises and ensures you can always meet your obligations.

Another option for extending runway is venture debt. You can find more Venture Debt Between Equity Rounds guidance on this topic. By implementing these startup cash flow strategies, you move from hoping you have enough cash to knowing exactly how much you have, how long it will last, and what levers you can pull to extend it. For more resources, visit the Managing Cash Between Rounds hub.

Frequently Asked Questions

Q: What is the best software for UK startup budgeting and cash flow forecasting?
A: For early-stage startups (pre-seed to Series A), a well-structured spreadsheet in Google Sheets or Excel is often the best tool. It is flexible and forces you to understand the numbers. As you scale, dedicated software like Float can automate forecasting by integrating with accounting systems like Xero.

Q: How much cash buffer should a startup maintain?
A: While it varies by industry, a common rule of thumb is to hold a cash buffer equivalent to at least three to six months of your net burn. This provides a crucial cushion against unexpected revenue dips or sudden expenses, giving you time to make strategic adjustments rather than reactive cuts.

Q: Is taking on venture debt a good way to extend my runway?
A: Venture debt can be a useful, less-dilutive tool for startups with predictable revenue and clear product-market fit. It is often used to bridge the gap to a next equity round or fund a specific growth initiative. However, it is not a solution for fundamental business model problems and adds the pressure of regular debt repayments.