In the journey of a start-up, cash is more than just a resource; it's the lifeblood that sustains operations, drives growth, and assures longevity. Effective cash monitoring and reporting are paramount for survival and success.
Let's take a deep dive into how to monitor and report on cash.
Regular reporting of cash burn and runway
Cash burn rate and runway are two crucial metrics that all start-ups should monitor closely. The burn rate shows how much cash you are spending each month, whereas the runway is the estimate of how long you can continue at the current burn rate before running out of cash. Regular reporting of these metrics will provide clear visibility into your financial health.
Forecasting cash flows
Anticipating your future cash flows is a critical component of cash management. Regular forecasting enables you to predict the cash your start-up needs, helping you avoid cash crunches and plan for sustainable growth. Cash flow forecasts should have sensitivities applied to them for any potential risks and opportunities.
Understanding your 'cash zero' date
Every start-up must be aware of its 'cash zero' date - the estimated day the cash will run out if the burn rate and income remain constant. This understanding allows you to proactively plan your next fundraise and make sure you're tracking the right milestones along the way.
Dave Eaton, Tech & SaaS sector lead at flinder says,
"You should have clear milestones in mind that will trigger the next fundraise and be actively managing towards those milestones. It might be an ARR number, a market share %, a penetration to a new market etc. but they should be strategic milestones that will sufficiently enhance enterprise value for the next fundraise. With those milestones clear and planned for, managing cash and runway towards them is the next step. If your forecasts show that you don’t have sufficient cash to hit your milestones, you need to take early action to make sure you do i.e. cutting costs, revenue based short-term financing, R&D loan etc."
Implementing a cash management system
Implementing a reliable cash management system can streamline the process of tracking cash flow, managing expenses, and making sure there's always enough cash to cover operational needs. Such a system can alert you to any potential cash flow issues in real time, allowing you to take corrective action promptly.
Fostering a cash conscious culture
Building a culture that values cash efficiency is a powerful way to manage cash effectively. When everyone in your start-up understands the importance of cash conservation and is aligned towards achieving cash efficiency, it greatly enhances the company's financial stability.
Dave Eaton, Portfolio CFO at flinder added,
"I love it when I walk into a senior leadership team (SLT) session and the whole team is challenging each other on driving costs down or improving payment terms. It must be driven from the top, so the CEO needs to be constantly questioning customer receipts, supplier payment terms for it to flow down to the rest of the team. I’ve recently started working with a business where the leaders of the operations teams have specific OKRs around working capital cycles and unit prices, which really focus the mind of the operations team and delegates key areas that often aren’t regarded as in the remit of them in a start-up."
Effective cash monitoring is critical for all start-ups, which should involve regular reporting and discussions of cash burn and runway, as well as regular forecasting of cash flows.
By regularly tracking and reporting on your cash position, you gain the insights needed to make informed business decisions, plan for future growth, and reassure investors of your start-up's financial health. It's through diligent cash management and reporting that you can make sure your start-up not only survives but thrives.