So let’s say that you recently started up a new technology business – you’ve landed your first few paying customers, you have a few employees and subcontractors, and maybe you’re even turning a profit. Better yet, some of your industry peers and other people in the know think that you’re really on to something – that you’ve got the right the team and the right technology, and that you’re hitting the market at the right time. Sounds like a recipe for success doesn’t it? Maybe.
When people ask me the top ten things I care most about as the COO of a startup I tell them the top nine are all cash – and that I can’t remember what the tenth one is, so it must also be cash. Now obviously that’s not entirely true, there are other things I worry about – but it is true that I spend a lot of time worrying about money. My co-founders often accuse me of obsessing about it – and they’re right – I do. As a self-funded startup – even the kind of well positioned one I described in the paragraph above – cash is hugely important, it is your lifeblood and it needs to be properly managed.
The good news is that in a lean startup like ours cash management does not have to be difficult. There are two things that I have done in particular to help us manage our cash position.
The first one is to build a simple daily cashflow model to track all of our cash ins – client payments – and cash outs – payroll, contractor payables, taxes, insurance, rent, legal fees and other expenses. More importantly, the model also projects forward at least sixty to ninety days so that I can see where things might get tight in the near future. This model has been a crucial tool in our rapid growth over the last year.
The second is the general approach I take to spending the company’s money – which is, I don’t like to spend money. All joking aside, we do spend money on things that really matter to the business, but when we travel, for example, we double up on hotel rooms and we use points to buy train tickets. When we buy computers for our developers, we buy top of the line machines, but we [buy refurbished](http://store.apple.com/us/browse/home/specialdeals/mac) and save a few hundred dollars per machine. Every dollar matters in the lean startup.
The reality of startup life is that there are lots of things that can go wrong, including running out of cash. While most of the potential pitfalls of running a startup are going to be out of your control, cash management shouldn’t be one of them.