Flatten the cash curve

Denis Breen

by Denis Breen

Posted Apr 05, 2020 in Technology

Covid-19 has wreaked havoc for businesses. We see the fallout daily and are greatly concerned about how many bricks and mortar businesses will struggle to reopen when this is over. For all businesses with capital commitments the coming few months will be a real challenge as their look to extend credit terms, drawdown government-backed funding and overall preserve the one crucial defensive element of their business, CASH.

Start-ups are definitely not immune and one of the first and most important things that startups should look at is their current cash situation. Cash is important in “normal” times, but it is especially important during periods of economic turmoil. For as big as a startup’s potential is or how much its users love the product, cash is the oxygen that keeps a startup going. Because of this, startups need to figure out their cash needs for the foreseeable future.

If you haven’t already done so, you need to start

Start with the overall goal. Survival! That’s it, nothing more, nothing less. Whatever you have to do, do it.

Flattening the cash curve now is essential to financial survival.

Below are some of our recommendations

  1. Know where you stand financially right now.
    • How much cash is in the bank, how much is due in, how much is owed out. You’ll find all of this on your balance sheet. Its the first place you should look in this process. Your Balance Sheet is your anchor in a crisis
    • Prepare projections of Profit and Loss statement. Invoiced sales and all expenses. You probably look at your profit and loss statement each month. If this shows Revenue on a monthly recurring revenue basis, you’ll need to replace this with invoiced sales in the month ( assuming invoices are due once issued ) as this is the amount that drives your real profit in crisis.
    • Figure out your cash requirements and runway for the next 6 months and act fast if the numbers tell you the runway is too short. This is all money expected in and all money expected out. Your income and expenses need to be shown Gross, ( VAT included if relevant ) and you should also include any capital expenditure here.
  2. Cut Costs and Drive Sales
    • Figure out how much revenue you really have. Stop looking at monthly recurring revenue and start looking at invoiced sales. Have nearly everyone contacting customers, giving them updates and keeping them in the loop and excited about what you’re doing.
    • Figure out how much it costs to run your business and separate all costs in 3 categories, essential, non-essential and can’t really decide. Cut the non-essential.
    • Understand fixed and variable costs. Don’t assume fixed costs are fixed at the moment. For example, consider calling your landlord and asking for multiple months rent holiday. You might be surprised.
  3. Reduce your working capital requirements and cycle time
    • Bill quicker, collect quicker, pay slower, or in certain circumstances not at all for the moment.
    • Look after your customers and people as best you can. Appoint a crisis task force ( 1 person will do ) and make sure they are contacting and dealing with customers throughout this period. It will help your collection process and provide a hotline to your true source of cash.
    • Collect in your receivables by reviewing all customers past credit terms. Polite phone calls are usually all it takes.
  4. Get Government Support
    • Current Government Wage subsidy should be availed of if employees are essential to service and turnover is shrinking.
    • Current Government-backed https://sbci.gov.ie/ SCBC loans should be availed of also.
    • Other Check out our blog on the latest government supports.
    • If you are carrying on R&D activities then claim your Research and Development tax credits for 2020 now. Early payments will be made to those who submit their corporation taxation return now.
  5. Contact your current investors and backers and outline the situation to them. Start putting a plan in place should you need to seek additional funding. At the moment new investors will be thin on the ground and it is more likely that VC’s will be active following historic investments. So your existing Cap table is your best friend. Keep them in the loop.
  6. Assess the opportunities. One of the great advantages of being a startup is the nimble nature of assessing opportunities.

And finally – Don’t Panic, Just Act Swiftly and Decisively

Contact us if you have any questions.

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