Page 142 - 6 Secrets to Startup Success

Your Math Story 121

As any seasoned business owner or investor can attest, profitability
doesn’t guarantee healthy cash flow. Cash is a product of payment
timing, forward-looking investments, billing and collections practices,
and other variables that, taken together, can have a counterintuitive
effect on cash levels. One of the ironies of early venture success is that
rapid growth can cause uninvited cash flow crises to arrive with little
or no warning.

I am not ready to jump on the trendy bandwagon of pundits pro-
claiming bootstrapping, launching your business at minimal expense
and with scant starting capital, as the only credible way to build a busi-
ness. As I’ll outline in the next section on funding, I believe that startup
founders who afford themselves a healthy financial cushion, in what-
ever form, enjoy a higher likelihood of success than the typical entre-
preneur. But even the most well-financed entrepreneur can operate
with a bootstrapper’s mindset to ensure healthy cash generation and
management.

Beyond the usual focus on prudent spending practices, I recom-
mend the following keys to managing your cash.

First, stay on top of your cash situation. Make this a non-negotiable
management practice. Review your cash levels, cash flows, burn rate,
and budget vs. actual expenses on a frequent, regular basis, at least
weekly early in your launch. Bob Reiss advocates for the creation and
review of a weekly financial snapshot, or “flash report,”8 and most
highly successful businesspeople I know sit down on a regular basis
to conduct such a review. For some, it’s Saturday morning coffee with
their finance person. For others, it’s a routine weekday meeting. It
sounds boring, and it sometimes is, but skip this practice at your peril.

Second, look far ahead down cash-flow road. The definition for “far”
will vary depending on your type of business and your situation, but
once you realize that you have only a few months of cash left, it’s often
too late to do anything about it. Raising money often takes four to six
months in the best of circumstances, and major expense cuts can take
several months to have a positive impact on cash flow.

Third, don’t delegate your ultimate accountability for the numbers. Many
startup founders wisely outsource bookkeeping and financial analysis
tasks. Eventually, with growth, you’ll need a trusted controller and/or

American Management Association • www.amanet.org