Observation, thoughts, and information.

Cash Is King


When starting a company, cash is typically very tight — corners are cut and dollars are squeezed to get more for less.  The ability for an entrepreneur to manage cash flow is a major factor for success.

Recently, Kelsey Ramsden, serial entrepreneur listed ten ways to keep your company’s cash flow alive.  Her tips include:

1. Always, always, always know how much cash you have in your account.  Ignorance is not bliss in this situation.

2. Take that cash-in-your-account number and subtract all the payments that you have placed in the mail. That represents the cash or checks inside envelopes traveling to their rightful owners.

3. Figure out your burn rate. This is how much money it costs to keep your business running each month. Keep this number as close to very low as you can.  As investors, we are always interested in a company’s burn rate.  This rate impacts growth significantly and is taken into account when term sheets are being drafted.

4. Never assume you are going to get paid when you think you will.  Most startups have to WORK to collect.  It’s not an easy task.

5. Invest interest-free when you can in building your business. Try to grow organically when possible.

6. If you must borrow funds, work with a lender with whom you can speak face-to-face with the decision-maker on your file.

7. Ask for terms on everything. Stretch out your money to build your business.

8. Use client money to build your business. You can do this by asking for prepayment or retainers.

9. Become familiar with all the financial reports (balance sheets, P&L, income statements, etc).  As a company’s CEO/founder you must know EVERYTHING about the business.  Stop listening to your financial statements alone to measure your business’ health. Look at your cash as well — and often.

10. Cash is like a tide: It goes out and in, and out and in. Always be conservative. It might be a full-moon kind of month when forces outside your control keep the flow out for longer than usual.

Some businesses fail because they fail — not because the finances weren’t managed.  The ability to anticipate cash-flow problems is your best defense in a very competitive market.