Poking through 13+ years of posts I find information that’s as useful now as when it was written.

Golden Oldies is a collection of the most relevant and timeless posts during that time.

Burn rate is why companies (and people) should budget. Unfortunately, budgeting is often driven by burn rate when it should be vice versa — as most learn the hard way. Hard, but not impossible, just ask the guy who went from a burn rate of over half a million a month to $15,000. Although this post is from 2016 when money was tight and focused on entrepreneurs, it applies to companies of any size, as well as people, no matter their income.

Read other Golden Oldies here.

Last summer David Bladow, co-founder and CEO of flower delivery startup BloomThat, had the worse kind of ah-ha moment after deciphering the company’s accounting — a self-described “convoluted mess.”

What he found was a monthly burn rate of $550K that meant the company would be out of cash in just 4 months.

That knowledge drove a laser focus to change.

Now instead of shutting its doors in November, its self-diagnosed death date, the startup launched nationally on February 3. The company that was burning through half a million a month is now down to $15,000 a month.

BloomThat did early what every founder should be doing now.

Yesterday Mark Suster wrote about how to figure the right burn rate for your company and last week we talked about doing more with less.

Actually, I think the tightening of funding is a very good thing, although it will create a certain amount of carnage, it will force founders and their teams to grow up.

If that sounds harsh, so be it.

Funding based on unproven future sales is driven by hopes that are heavily shaped by outside circumstances — circumstances beyond any founder’s control.

Sam Altman warns that funding is not a guarantee of success and in the next few years David Bladow, Andrew Wilkinson and dozens like them will prove that horses have the staying power that unicorns lack.

Flickr image credit: Tsutomu Takasu

Last summer David Bladow, co-founder and CEO of flower delivery startup BloomThat, had the worse kind of ah-ha moment after deciphering the company’s accounting — a self-described “convoluted mess.”

What he found was a monthly burn rate of $550K that meant the company would be out of cash in just 4 months.

That knowledge drove a laser focus to change.

Now instead of shutting its doors in November, its self-diagnosed death date, the startup launched nationally on February 3. The company that was burning through half a million a month is now down to $15,000 a month.

BloomThat did early what every founder should be doing now.

Yesterday Mark Suster wrote about how to figure the right burn rate for your company and last week we talked about doing more with less.

Actually, I think the tightening of funding is a very good thing, although it will create a certain amount of carnage, it will force founders and their teams to grow up.

If that sounds harsh, so be it.

Funding based on unproven future sales is driven by hopes that are heavily shaped by outside circumstances — circumstances beyond any founder’s control.

Sam Altman warns that funding is not a guarantee of success and in the next few years David Bladow, Andrew Wilkinson and dozens like them will prove that horses have the staying power that unicorns lack.

Flickr image credit: Tsutomu Takasu

A Friday series exploring Startups and the people who make them go. Read all If the Shoe Fits posts here

Forbes had a a useful article bringing spotlighting a prime point abut crowdfunding that often takes a backseat.

Taxes.

This is especially true if you raise substantially more than your stated goal.

Sure, you will probably spend what you raise on development and operations, which eliminates the problem — assuming you have enough of the year in front of you.

Near the end, the article does you a serious disservice.

You may be able to sidestep the whole issue by claiming it was a gift. Here’s where the rules start getting funky, and unclear. That’s because if a backer gives you a lot of cash for a minimal reward, it’s arguably a gift rather a sale. Get a good accountant. (Any gift taxes would be owed by the giver, not the recipient.)

Don’t count on it. When it comes to the IRS, making assumptions in areas that are murky and don’t have clear rules can be a recipe for disaster.

And, as it does say, you need to deal with sales tax State by State.

There’s no question that launching and running a successful crowdfunding campaign takes focus and hard work, but it also requires special expertise.

Just as you wouldn’t ask your a programmer to design hardware, don’t assume that your own skill extends to the tax code.

The cost of a few hours of financial/tax expertise, with proven knowledgeable of the startup world will save you much more than money in both the short and long run.

Image credit: HikingArtist

I’m traveling today, so I’d like you to welcome Miles Mochizuki.

Miles is a certified public accountant and principal at M. Mochizuki & Co. He is a CPA and MBA with more than 25 years of experience as a finance executive, auditor and consultant.  He is the former CFO of several technology companies in Silicon Valley and a financing specialist who has arranged financing ranging from venture capital, bank and lease financing to multi-million dollar debt and equity offerings on Wall Street.  His consulting clients include pre-IPO start-ups and established public companies. You can reach Miles at (925) 413-9198 and miles@mmochizuki.com

Summary

The recession and credit crunch have made cash a strategic asset.  While debt and equity financing is still available, these sources of cash have become unreliable and difficult to tap, increasing the importance of operating cash flow.

Optimizing cash flow requires the close scrutiny of incoming and outgoing cash transactions and the implementation of credit, purchasing and strategic decisions that impact cash.

Simply put, maximize cash by spending wisely.

Reduce and Control Expenses

Headcount is a main driver of operating expenses.  In good times as well as bad, organizational rightsizing is essential to effective cash management and controlling the company’s “expense burn.”  Operating expenses are also strongly influenced by the company’s business model and strategic focus.

Here, the aim should be to reduce complexity by eliminating unprofitable products, markets and customers.

Reducing complexity will also simplify the purchasing process and reduce the required investment in inventory.  Operating expenses such as travel and supplies should be examined and nonessential expenses eliminated.  The feasibility of a negotiated rent reduction and other contract restructurings should also be considered.

The company should adhere to a regularly scheduled check run, typically once a week as a means of instilling discipline in the disbursements process.  During this process, cash disbursements should be prioritized in order of importance to ongoing operations.

This usually means that payroll and essential vendor payments will have a high priority and will take precedence over other disbursements in the event that expected cash inflows do not materialize.

To the extent possible, disbursements should be timed to coincide with cash inflows so as to not unnecessarily deplete the company’s cash reserves.

Overall, the goal of managing cash inflows and outflows is to preserve and, optimally, increase the company’s cash balances so as to provide a financial buffer for operations.  This conservative fiscal management will also result in presenting the company in its financial best light for the purposes of bank credit lines and other outside financing.

Weekly Monitoring of Cash Flow

Another component of effective cash management is the preparation and review of a weekly cash flow statement.  This report should show in sufficient detail the items comprising cash receipts (cash sales, A/R collections, etc.) and cash disbursements (payroll, benefits, inventory purchases, etc.) for the current week and projected for the next 4 – 8 weeks.

This report should be prepared by accounting with input from sales and purchasing.  It should be reviewed by the CFO or Controller, along with the current week’s A/R and A/P agings and check run.  Follow-up items from this review should be discussed, as appropriate, with sales, operations and management.

Cash as a Strategic Asset

There is no question that in these uncertain times, cash and ready access to cash are strategically important and may make the difference between winning and losing.  A company that manages its cash well will be in a strong position to weather the downturn and take advantage of the opportunities to strengthen its market share.

Conversely, in this economic environment poor cash management can quickly lead to insolvency and bankruptcy.

Image credit: svilen001 on sxc.hu

Image credit: duchesssa

When the economy slows, Wall Street tends focus on cutting costs (of course, they do that in good times, too), but cutting is rarely enough put a company on a strong financial footing—only sales can do that.

And no matter what you’re selling or to whom, sales are far more cost effective when you focus on relationship, because at some point all customers are new. While acquiring a new customer can cost thousands, selling to those you already know or to whom you’re referred costs far less.

This, of course, assumes that your product did what it was supposed to do and your customer service solved any difficulties that arose.

As your sales people start mining your client lists they need to stay hyper-aware for any dissatisfaction, whether overt or covert and address it. In today’s world an unhappy customer is a far different animal than in the last downturn and can sink your sales efforts with a few clicks of his mouse. By the same token, a customer who appreciates your products and services is a far more powerful advocate than ever before.

The relationships you have with your customers are one of your most powerful shields when it comes to the whims of the market.