Cash Discipline for an Early Stage Tech Company
These days, it seems like finding ample financing for startups is easier than ever. Many “industry disruptors” have found a captive audience among investors eager to support innovative ideas. But the unfortunate truth is that whether you’re a well-funded startup with money to burn or a cash poor bootstrapper, without discipline, it’s too easy to end up among the nearly 90% of startups that fail.
In fact, cash flow issues are one of the top reasons cited in startup failure. Today, we’d like to share five strategies we suggest to our early stage technology company clients to help them minimize cash burn.
1. Don’t get ahead of yourself!
That swanky office for rent in downtown may look enticing, but our advice? Resist. Being disciplined about your finances is key to longevity, which in our business can often equate to success. Burning through cash for the sake of appearances is a risky move, one that chips away at the stability many startups are desperately trying to achieve.
Why do we advise a pragmatic approach when it comes to your finances? Because too often, we’ve seen business owners spend cash without acknowledging unforeseen cash flow disruptors. A quickly growing business needs cash. And oftentimes, new businesses aren’t eligible for Net 30 terms with vendors. You’ll need to financially plan for the ebb and flow of business in order to stay afloat.
2. Weigh your options when it comes to new hires.
Strategically build your staff, and start small. Outsourcing can give you access to talent without the expense of full-time employment. Salaries and benefits are costly for startups, and alternative employment arrangements can often be made. It’s wise to consider what your employment strategy will be before hiring too many full-time employees.
3. Stay on top of the cash flow cycle and projections.
You can keep an eye on your cash flow by establishing a firm hand on bottom line management. As one successful startup owner says, “Break down your numbers and watch the trends. You’ll soon have a better understanding of both income and expenses. Patterns will emerge.”
Become familiar with the term “cash flow” – it doesn’t just refer to the funds that you have coming in. We advise projecting cash flow on a weekly basis to stay on top of finances and avoid cash flow issues.
4. Ensure prompt payment from your clients.
Tracking invoices and collection activity is an accounting “must-do”, and it can be done with a simple Excel spreadsheet. Create a list of invoices with detailed information, which will help you track and follow through on collection activities.
On average it can take up to 60 days for a small business to receive payment on an invoice. Not only do you want to account for this time period during your cash flow projections, but you’ll also want to ensure payment is prompt from clients by issuing invoices in a timely manner and following up on unpaid invoices.
5. Reach out for help.
Growthwright offers financial business services to startups and small businesses. If you don’t feel confident managing the finances for your startup, consider us as a strategic partner.
Michael Cerino is the CEO of Growthwright. Growthwright helps emerging technology companies with necessary business operations so they can focus on company growth without the distractions of critical financial, technical, human resources, sales and marketing tasks.