Smart Business Magazine, June 2019

14 Smart Business Cleveland June 2019 Your nightmare scenario Financial planning may be tedious but it can provide valuable insight when trouble looms Why does this happen to startups It usually comes down to one of three familiar phrases 1 I didnt see it coming A solid financial model is absolutely mission critical for a startup The problem is financial modeling is not fun for most of us its a chore I admit I hated accounting in school I got all knotted up in the credit this and debit that and invariably the balance sheet never balanced It wasnt until I was running a startup that I fully appreciated this fact After a few cash flow scares I learned the hard way that leaning on a tight forecast was the only way to really know where the business was heading Very few entrepreneurs enjoy grinding on financial spreadsheets but its truly essential if you ever hope to see it coming early enough to create a viable plan B before its too late 2 Ill just ask my investors for more money Presuming any investor will automatically re up with more money when you get into cash trouble is a dangerous assumption to make While investors may have ample cash available they wont blindly fund a shortfall especially when it comes as a last minute surprise It is critical to keep them in the loop so you know their appetite for supporting you when things go wrong If you end up needing to find new money it will take time more time than most startups have before cash runs out And remember the general rule is The more desperate the situation the worse the deal terms 3 We were on the verge of things turning around A really good sales call A conversation with an interested strategic partner A new product feature release These are very promising events that can lift an entrepreneurs spirits But promising events guarantee nothing They are only real when they are in the bank literally And while I respect resiliency and a positive attitude there must be a healthy dose of skepticism to provide balance Otherwise banking on good fortune when the money is running out is not going to end well Its cliché but the best approach when it comes to cash management is simply to plan for the worst and hope for the best It may be tedious but the right approach is to grind out detailed monthly financial projections and stress test some would say torture test them rigorously Its how you construct a business plan that can withstand the often inevitable and always unwelcome rising expenses vs lagging sales phenomenon that comes with chasing rapid market traction Nobody likes to admit how often cash flow problems derail startups but it happens all the time And if you can see it coming you and your investors will have time to do something about it Nothing kills a startup faster than running out of money And nothing can be more paralyzing to an entrepreneur than realizing the business bank account is plummeting toward empty without a plan or enough time to stop the freefall INCUBATOR JUNCTION JERRY FRANTZ JERRY FRANTZ Senior managing partner entrepreneurial services and investing JumpStart Inc has helped provide advisory support to more than 75 portfolio companies Jerry manages the team that provides JumpStarts portfolio companies with guidance and resources to help them grow rapidly jerry frantz@ jumpstartinc org www jumpstartinc org