Category: Cash Flow

“Focus on cash flow, not profitability” – Guy Kawasaki

Profitability is one of those spreadsheet things that we can sit down and calculate.  The inputs are price and cost and we can play with the numbers until they look good enough for investors….

Of course it’s not that simple but cash flow kills the startup quicker than un-profitability.  Cash flow adds the time dimension to the financials.  Not all customers pay on time and some don’t pay at all.  And yet, your suppliers expect you to pay them on time and your employes, for some reason, want a paycheck every two weeks or so and your significant other would like you to contribute to the rent.  This is why Freemium business models can be risky.  You get traction with endusers but you can’t control when they decide to pay you.

Maintaining cash-flow can be a significant challenge and one that most CEO’s are not prepared to deal with.  It’s not fun to bug people about money.  But you need a process to do so and that means you need to measure it… every day!  Who is paying and who is not?  Those that aren’t, how long have they been deadbeats?

Another important measure is how many days it takes to close a sale.  A sales process gets more expensive the longer it takes for the customer to decide to buy.  You need to keep an eye on this.  Some sales channels close more effectively than others.  Excuses don’t matter…only cash.

Sometimes you have to write letters and make phone calls.  Here the thing:  you’re managing your cash flow and all of the businesses in your value chain, including customers, are managing theirs as well.  That means they are deciding who gets paid first and who get’s put off.  It’s the law of the squeaky wheel.

If you are blest enough to receive venture capital, you can also run out of cash.  Going back for more gets REALLY expensive.

Read Reality Check by Guy Kawasaki.

Blogging Gazelle is published daily by Shawn Carson

“Your number one job is DROC” – Barry Goss

DROC is “Don’t run out of cash”.

You can’t wait until you have 3 weeks of cash left to get serious about raising funding.  If you need Venture Capital, it takes 4- 6 months at best to close a deal and that’s only if you have an impending term sheet.

SBIR’s take several weeks to write and if you are awarded a grant, it takes three months for the check to arrive.

Even debt funding takes time for small businesses and you will have to go to more than one institution.

The time to raise capital is when you don’t need it.  Desperation does not improve your chances.  It shows you failed to plan for the next round of funding or that you misspent the capital you had.

You are always selling and you are always raising capital.

Blogging Gazelle is published daily by Shawn Carson

“If we did a complete financial analysis, no one would ever have children.” – Shawn Carson

Happy Labor Day!

According to CBS, it costs a quarter million dollars to raise a kid to the age of 18.  Check out the cost breakdown: http://www.cbsnews.com/8301-505144_162-57598411/what-it-costs-to-raise-a-kid-$241080/

Tack on another $100k to get them through a public university.  If you did a full financial analysis complete with a discounted cash flow and IRR, there is absolutely no break-even point.

But that’s not why we have kids.

“All financial projections are lies.”  So goes the Venture Capital joke.  They have to be believable and pass the sniff test when you tell your story but no one can predict the future, nor can we predict customer behavior.  There will be a time when you must crunch the numbers, tweak the models, build the spreadsheets and analyze the scenarios.

But in the startup phase, no amount of analysis will justify the investment.  That will come from customer validation so run the numbers and then, as Guy Kawasaki would say, “go make meaning”.  If you find a way to ease the pain and create delight for your customers, the numbers will follow.

“There are only two rules of Finance – Cash is King and Love your Uncle.” – Unknown

This one was mentioned in my MBA Finance class.  Cash is the lifeblood of the business.  Guard it well for you’ll die without it.  Understand your customers’ process to pay.  It’s not always cash on the barrel head; especially the government and institutions.  They tend to be slow in letting their cash go.

The government wants their fair share so get help understanding the definition of “fair.”  Make sure your accountant has experience with startups… one who understands employee stock options and such.  Sometimes there are strategies that are “obvious” for sole proprietors that are detrimental to LLC’s.