For many of us entrepreneurs, accounting feels like the necessary evil of starting up our businesses: we can’t live without it but we are loath to do it ourselves. Finding the right firm for strategic financial guidance can be tricky business. An unofficial poll of fellow founders revealed that many entrepreneurs use their personal accountants to help with their business’ books the first time around.
To help close the information gap, we launched our Founders-Only Fireside Chat Series. Our goal is to bring together thought leaders and top early-stage entrepreneurs to discuss practical solutions to common business issues. Our inaugural event took place at Halcyon House in Georgetown and included 25 startup founders. We were joined by Zach Giegel, founding partner of GSP Financial Services, who shared tips on how to “avoid those oops money moments.”
When asked what was the most common mistake early stage startup founders make, Zach’s answer was singular: CASH FLOW. Zach explained that while many young businesses focus in on total dollars raised or projections on potential revenue to be earned, too many get caught taking their eye off the ball when it comes to regularly balancing their business’ check book.
Zach offered 5 simple yet effective ways to track your company’s cash situation:
1. Monitor It Monthly (or Weekly): Early-stage companies are not mature enough to wait for the end of a quarter to manage their cash flow. Using a simple excel spreadsheet (or Quickbooks) to track money-in and money-out each week will make you a stronger operator and create a layer of flexibility to make real-time adjustments as needed.
2. Involve Your Team and Investors: Keeping your team in the loop will help make them better agents of your business and yield smarter decision-making. Talking cash flow through with investors will help to manage their expectations.
3. Negotiate The Timing of Payments: Timing can be everything. Stretching out your account payables and shortening the life-cycle of your receivables can help to generate more near-term cash that can help support your business operations and grow more quickly.
4. Think Through Purchases: It might not always make sense to buy the equipment necessary for your business. Depending on where you are in the life-cycle, renting can make more sense. Crunch the numbers and think through the implications if business goes south.
5. Check Your Current Ratio: Regularly spot-check your current ratio – current assets to current liabilities. It represents your company’s short-term liquidity profile.
Managing cash flow is a critical topic for early-stage ventures as a number of leading venture capitalists warn about a year of down or flat rounds, a tougher environment to raise in, and emphasize the ability to conserve cash for 18-24 months rather than the “spend to grow topline approach” that has ruled the last couple of years.
Interested in receiving an invite to our future Founders-Only Fireside Chats? Email firstname.lastname@example.org