ENTREPRENEURS TOP COMMON MISTAKES (5) – running out of cash

We are at the end of the “common mistakes” section. This week I am going to present the most common among all the common mistakes: running out of cash.

You may remember that I already categorized this mistake in the section’s introduction post as the most critical one. So you realize that it is a dramatic combination: most common + most critical.

Cash management is not fun for most of us, yet it is essential. Protect your cash as a jewel. It is the most necessary instrument to continue pursuing your dream. It is actually the sap of your dream. Keep cash management in your top priority to do list.

When it comes to cash flow planning you have to make some important decisions related with how to finance your venture: Are you going to put your own equity to start operating? Do you need investors? Which portion of your business are you going to share? Are you going to be able to open some credit lines with your banks to mitigate punctual liquidity problems?

Each venture requires a specific analysis and specific solutions but there are some general concepts that can be applied in most of the cases:

1. Start lean. Apply lean management concepts. Don’t spend a single dollar that is not required. You CAN do more with less. Create a lean culture maximizing the output of every dime you spend.

2. Focus on developing and establishing your revenue stream. Spending money is pretty easy. For a new venture, generating revenues is much harder.

3. Don’t rush to escalate and grow. In some cases, after a first quick success, startups raise a significant amount of money from Venture Capital firms or other investors to support ambitious plans for growth. I haven’t seen a single company going into bankruptcy because they were not able to grow and escalate fast enough. I have seen many escalating WAY too fast without an established and sound revenue stream.

4. Set up a reliable method to measure and control cash. In cash management you cannot afford bad surprises. Follow up regularly. At least on a monthly basis. Much better if you follow up on a bi-weekly or even weekly basis.

The season is coming to an end… Next week I will focus the post on evaluating the last 20 weeks and start planning for the next 20.

For those who are following the blog:

Any advice or suggestions for the next season will be welcomed.