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How to Make Your Cash and the Investor's Patience Last Until You're Profitable

Cashflow is a basic survival metric for every startup. Investors check your burn rate to assess your efficiency, and project your remaining runway before you run out of money and into a brick wall. Don’t wait until you are almost out of cash before managing every dollar spent, or looking for the next refueling from investors. Desperate entrepreneurs lose their leverage and die young.

It doesn’t take a financial genius to recognize that you need to keep your burn rate low. Yet it always amazes me that I can find two different startups, seemingly working on the same problem, with one having a burn rate several times higher than the other. Of course, their answer is that the second intends to get to market faster, but every engine has limits regardless the fuel applied.

Related: How to Better Manage Your Cash Flow

If your runway is less than a year, it’s time to either begin looking for a new cash infusion or defining and implementing a Plan B to assure survival. Your goal is that magical break even point and hockey-stick profit-growth curve. Raising money from professional investors, even friends and family, takes time. Count on six months from beginning the funding process until a new check is cashed.

As a mentor to many entrepreneurs and startups, here are my best recommendations for keeping the burn rate low, planning ahead and maintaining credibility with investors:

1. Manage cashflow personally every day. A big influx of orders may feel like success, but can kill your business if you don’t have the cash to produce, deliver and wait for payment. The best entrepreneurs manage cashflow ruthlessly and never delegate decisions about spending money. Cashflow out equates to burn rate, and the runway depends on your reserves.

2. Buffer your projected resource requirements. You will make mistakes. Things will cost more than you expect. Always add 20 percent to your best estimate of funding requirements when approaching investors. They understand startup realities. Better to ask for more early. Going back to investors for more money ahead of the plan is high in terms of credibility and leverage.

3. Use future cash for payments where possible. Deferred payments start with stretching the payables period but, more importantly, include giving employee equity in lieu of a higher salaries and negotiating vendor deferred payments out of future revenues. Think of these alternatives as paying interest on a loan, and manage them wisely.

4. Be a miser with contract services and facilities. One of the main reasons that former corporate executives often fail as startup CEOs is that they expect a big office and an entourage of expensive professionals to do the real work. Cashflow can be drastically reduced by working out of your garage. Tackling most of the support tasks yourself.

Related: 5 Things Investors Want to Know Before Signing a Check

5. Use social media for early marketing. Hire a professional marketing and public relations agency once you have a good revenue stream but you don’t need them to start a free blog, establish Facebook and Twitter accounts with initial content and complete the basics of search engine optimization. Social media is not rocket science.

The timing of cashflow is everything. Waiting until you have something to sell before bringing on a sales and operations staff. Getting a sales contract before manufacturing inventory. Match your office, facilities and computer equipment to the size of the staff you have today, and intend to have in the next six months.

As a rule of thumb, your monthly burn rate should be less than 10 percent of your last funding raise or starting cash in the bank. For example, a software development startup raising $250,000 from angel investors better be able to operate on $25,000 per month. This could equate to two technical founders (with a minimal salary), funding two developers for a year.

In this case, the primary cash outflow would be for product development and operating expenses, with potentially enough runway to build the initial product, get a patent, attract some early adopters, and build the initial revenue stream. That should equate to an adequate valuation for a $2 million follow-on Series-A round, without giving away all the equity.

Overall, managing cashflow and burn rate is more critical to your business success than having the right idea and the right product. It’s why most investors proclaim that they invest in people, more than the idea. If you adequately manage your burn rate, your startup is much less vulnerable to flaming out before you get to that elusive break-even point.

Related: 6 Questions to Determine If a Potential Investor Is the Right Investor

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Manage your cash flow


Manage your cash flow

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Keeping a record of the money flowing in and out of your business is crucial for managing your business finances.

It’s also a good idea to think about what you can do to improve or maintain your cash flow.

Keep track of your cash flow

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Pay Day Loans Salt Lake City – Hoe to Manage Your Loan …

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How to Manage Payday Loans Responsibly

Last updated 1 hour 45 minutes ago

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Payday loans serve as a helpful short-term solution when you are in a financial bind. As long as you act responsibly about repaying your cash advance, you can get the monetary help you need. Use the following tips to stay on top of your payday advance so you can improve your entire financial situation:

Make Payments on Time

Throughout each day of your short-term loan repayment period, you accumulate interest on top of the loan amount. To prevent having to pay much more than you should try to make all of your loan payments on time. Whether you have to start a budget or change your spending habits, do what is necessary to keep up with your payments.

Use Payday Loans for Short-Term Expenses

Although you do get cash immediately when you receive a payday loan, it does not serve as a long-term solution to your money troubles. Use your cash advance to regain your financial footing so you can start saving money.

Start Fixing Your Credit

A bad credit score could keep you from buying a house or a car. If you want to improve your finances, start to work on improving your credit score. Try to pay off your debts as soon as possible and show creditors that you can be responsible financially.

Focus on Other Expenses

Decreasing your other expenses will help you focus on paying off your cash advance. Make an effort to start eating at home, recycle old clothing, and find low-cost means of entertainment until you are in a more comfortable spot financially.

RainCheck gives you the short-term help that you need to start improving your finances and live a freer, less stressful life. We offer cash now services for the Salt Lake City area to keep you in control when it comes to your money. Visit us online or call (801) 734-9106 for more information.

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