Thursday, January 21, 2010

Things you shouldn't screw up: Cash management (part 3)

Cash management is one of the simplest parts of running a business, yet for some reason so many people screw it up.
  • I have X dollars in my bank account.
  • I make Y dollars per month.
  • I am spending Z dollars per month.
How many months do I have left to live?

You must create profit and sales before you run out of time. 90% of startups die because they run out of money. Remember this is your life. Protect your life. If you screw this up, you are dead. There is no replay button, there are no checkpoints or saved games. Way too many startups are too bullish with their budgets.

Edit: Great tip from Brian Becker "Usually people screw up cash flow because they over-simplify it. X, Y and Z aren't fixed amounts, nor is their timing. Risk management is the name of the game. Too much risk and your doomed, too little risk and you might as well put your money in CDs."