The Outsourced CFO: Part 1 - Get a Handle on your Cash Flow
Why Having an Outsourced CFO Increases your Chances of Being Successful
Entrepreneur’s Guide to Financial Responsibility
Part 1: Get a Handle on Your Cash Flow
One of the trickiest areas for any start-up, whether a small business or 'solopreneur,' is figuring out the financials of the enterprise. Before you set up an assembly line or start taking on clients, you need to get your cash flow under control.
Too many entrepreneurs get mired in the day-to-day aspects of producing their actual product or service. They turn around and have no money in the bank and no immediate prospects for capital. This forces them to lay off staff or even close their doors when they run out of cash. Don’t let this happen to your business!
Here’s Part 1 of our Entrepreneur’s Guide to Financial Responsibility blog series: Get a Handle on Your Cash Flow. We’ll give you five good reasons why outsourcing your CFO job duties can boost your chances of success. That way, your business doesn’t become just another statistic in failure.
Do You Have a Budget?
Have you ever moved into a new home that’s much larger than your previous one or so far away it’s almost like starting over? You’ve just dropped a ton on the down payment, the closing costs, the movers, and all the other expenses associated with the upgrade. So, when you have to buy some new furniture, a new vacuum, a lawnmower, and all new window treatments, you think, “In for a penny, in for a pound.”
You suck it up and fork out the money, maybe even adding some nights out to check out the new neighborhood or relieve you of cooking dinner when you’re tired. Suddenly, you turn around two months later to find your savings drained by your new lifestyle. You budgeted for the essential housing costs. But the other stuff is all unplanned and leaving you feeling like a freight train running loose on the tracks.
Sadly, many start-up businesses take off in the same way. You allocate funds for a new office or warehouse space and hire staff you can’t do without. Then, you find you need new computers, a full-time receptionist, telecom supplies you’ve never even heard of, and airfare to potential clients who won’t come to you. Like the home scenario above, you shell out for the expenses and get in a new habit of spending willy-nilly.
Needless to say, this is not ideal for a new business on limited funds. But your time is limited too, now that you’re caught up in the everyday tasks of running your company, so it continues.
Do you have a budget? No. What can you do, though? You’re so overwhelmed that you wind up hoping the next influx of venture capital will let you get caught up. Then you can rein in your spending.
What Is Your Burn Rate?
If you’re caught in the cycle above, you’re not likely thinking about your burn rate: the amount of cash you’re spending every month to run your business. Your burn rate covers everything from your bare-bones expenses, like rent and salaries, to new one-off purchases, such as furniture and technology. Many first-time business owners only look at their expenses after the fact, and they fluctuate wildly month to month because they have no fixed budget.
What Is Your Current Cash Runway?
The reason you need to be able to know, and more importantly predict, your burn rate is because you need to be able to calculate your cash runway. Your runway is the amount of money you have left with which to operate before you need a new infusion of cash. This comes whether through a massive invoice payment or capital investment (usually the latter).
Like a runway at an airport, once you’re out of pavement, you’re in trouble. What happens when start-up enterprises run out of cash? They have to make terrible decisions, like cutting back on staff hours, laying people off, downsizing the office, or eliminating parts of the product line.
Some businesses even shutter their doors or go back to working part-time from the garage. This, of course, is not what potential future venture capitalists want to see.
Who Is Holding You Accountable?
If you are the founder or CEO of your business, are you responsible enough or knowledgeable enough about the accounting side of things? And can you hold yourself accountable for your books? If you don’t put the brakes on out-of-control spending, set up a budget, and plan for a new cash infusion, who will?
Are You a Magician?
Of course, you’re only human, not a magician. You’re working 80 hours a week already and still not getting through your to-do list! You may be covering three different jobs because you don’t have a full complement of staff yet.
Everyone still turns to you for answers because the hierarchy system isn’t in place. You have a ton of one-time tasks you have to get through before you can even bill the first client. How are you supposed to manage it all, especially the finances?
Fortunately for start-ups, there’s Scrubbed. We offer flexible full-service accounting and can handle your books from the time when you only need a part time bookkeeper up to time when you need a full-time CFO. We’re happy to help you navigate your bootstrapped first year to your million dollar future years.
We provide a line of turnkey business solutions using cloud-based software to meet your company’s unique needs:
Accounting and financial reporting
Budgeting and forecasting
Inventory management support
White label accounting
Audit and professional services
Tax preparation and filing
Corporate finance services
You get to focus on building your business and doing all the things that led you to go out on your own in the first place. We'll handle the details.
Scrubbed can help you create a budget that lets you get a handle on your spending. We’ll assist you with staying at a consistent burn rate to maximize your cash runway.
We’ll talk more about all the ways using Scrubbed as an outsourced CFO can benefit your start-up in the next posts in our series.
Meanwhile, contact Scrubbed today for a free consultation to learn more about our services. Let’s bring that runaway spending train to a stop before it’s too late.
About The Author
Aira’s financial advisory expertise includes financial forecasting and modeling, financial due diligence, buy-side/sell-side support, drafting of business plans, and creating key performance indicator dashboards. Her risk management expertise includes corporate governance, internal audit, forensic accounting and enterprise risk management.