Why should Startups care about Cash?

- April 22, 2013 2 MIN READ

When starting a new idea, the hardest thing apart from getting it off the ground is working out a way to fund it. And if we have some funds to get us going, and keep us going, how long will they last?

Or even if we are out of the early start-up days, and have received funding from angel investors or venture capital, how do we make the most of this funding? Well, it comes down to the numbers.

Why are the numbers so important? Well, they tell us several things:

  • Do you have enough funds? It’s kind of a pointed question. How do know how much funding you need when you’re starting off. It might be difficult to really understand how much you need. But if you spend even 60 mins thinking about what your key start-up and operating costs are, you will be much more focused on working out what is achievable with the funds you have, or how much more you need. Also, don’t forget about needing to fund your own personal expense – how are you going to afford your rent, food and so on?
  • How long will the funds last? This is really important as there are so many uncertainties in any start-up. Have you worked out how long the funds will last before you need more funding or until the business starts to generate a positive cashflow? What is the monthly cash burn of the start-up and how can you manage and sustain this to last as long as possible?
  • Can you get more funds into the business? Our clients have received funds from many sources starting with government R&D grants, sponsorships and grants from universities, seed programs such as Optus Innov8 or angel investors and venture capital among others. All these sources are not always available and if so, may be difficult to obtain, irrespective of whether it is seed or Series A funding.
  • When will your start-up have a positive cashflow? Are you tracking your expenses and comparing them to revenue and customer metrics. How many paying customers do you need to break even? Is it achievable? Track your metrics so you better understand your business.

So what should you have in place to make the most of the funds you have available? It’s simple:

  • Have a well prepared and concise budget available. Use this to keep yourself and your business accountable, and ensure you can meet your start-up and operational costs.
  • Know your businesses key drivers and metrics so you know when you’re going to hit key business and funding hurdles. This will give you time to plan for, and address them.
  • Track your cash burn rates. Typically you do this monthly, but make sure you have up to date numbers. You need to work out how long the cash will last, and this will keep you focused on potential funding options available.

So use your numbers each month to drive your start-up’s growth and success.

Emma Petroulas is Client Happiness Director and Co-Founder at Nudge Accounting. She also lectures in Small Business at the University of Technology, Sydney.