Startups: Here’s What You Need to Know About Managing Cash Flow

The number two reason startups fail is that they run out of cash. While frugality and bootstrapping can extend your runway, lots of pre-seed startups have poor tracking of their cash flow. An equally opposite problem is raising too much money and misallocating the cash or spending it too quickly.

Michael Tannenbaum, the CFO of Brex, recently shared his advice to startups on how they can manage their cash flow effectively. If you’re a startup, we highly recommend you check out the full recording of the event here — which includes a deeper dive into Michael’s expertise. Or, keep reading to get a few of Michael’s top recommendations.

9 Tips for Managing Startup Cash Flow

Tip #1. Plan to win.

Always assume someone is going to want to approach your company because it’s successful. Make sure you are using the right software from your cap tables to your payroll and everything in between.

Tip #2. Get real with numbers.

At the end of every month, make it a habit to go through all your financials for that month. Review your actuals versus budget. Have an expectation of how you think things went and compare that to how things actually went. Over time — as you add boards — you’ll have quarterly board meetings. Eventually you’ll have to get an annual audit. Taking these important steps in the beginning will help you with your later success.

Tip #3. Monitor your spending!

Budgeting and forecasting is a natural way to raise the conversation about financials. Get the awkwardness out of the way and plan on having those conversations every month. Looking at your financial statements every month and seeing how much you’re burning.

Tip #4. Understand when it’s time (or not time) to hire a CFO or outside help.

At the end of the day, someone needs to maintain accurate books and records. This is critical for fundraising and building a future. It could be done by you or someone else. You started your company with the intent it will work, plan for it. In the beginning, outsource unless there’s an expert on the team. There’s tons of great resources out there. CFOs are relevant for fintech, otherwise wait until series B.

Tip #5. Ask the right questions before fundraising.

Do you actually need to? Does it mean having an idea or hiring someone? What are some milestones you need to hit? How much will you be burning and when do you need to start fundraising?

Tip #6. As you grow your product and your team, you need to know how to forecast.

Have a sense of how investors will compare your business against others. KPIs matter and they will indicate performance and help with decisions. Here’s what to review: User/top line metrics / Profitability metrics / headcount metrics.

Tip #7. Set valuation and milestones.

Identify your goals. Evaluate the resources you need to succeed. Make sure you have 6 months of cash burn. This brings you to your valuation. When you get to your valuation, remember the basics: 20% cash burn. Sanity check. How big could my business be and how is it going to be in the market?

Tip #8. Manage your investor expectations.

Set out a process. Whether you’re knocking on doors of Sandhill Road or hopping on a private jet. Just know your process in advance and have your outputs ready.

Tip #9. Know where you are in the broader market.

That’s how investors will consider you!

There’s tons more insight where that came from. To crack into the detailed deep dive, check out Michael’s full recording here, complete with his tooling recommendations and a Q&A session where Michael takes on what remote work means for financials, what exactly to ask when hiring an external accountant, and more.

You can also check out the list of all upcoming Startup Grind events here.