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5 Tips to Avoid Cash Crunch and Burn

For a successful venture, you need to have enthusiastic leadership. In the absence of such leadership, the company can go into losses. An enthusiastic leadership will attract employees, investors and customers which will eventually increase the company’s turnover and profit as well. This can also become a liability when you deal with the financials of the company. Running out of cash kills 8 out of every 10 businesses within 18 months of the opening. Here are the lessons to stay away from the cash casualty that your business faces:
1.       Estimate the amount of time it will take to be profitable-then double it
This is a key area for any business. Being an optimist in this situation can be harmful for a budding entrepreneur. It can kill a business as soon as it is started. You need to anticipate that at times you need to finance out of your pockets and you must not be conservative and must have a progressive approach.
2.       Hiring must lag behind the need
You must not hire more people than you actually need. This is a cause of concern in the long run. It can lead to significant layoffs. Startups must try to stretch the capabilities of the employees. Money should not be wasted in extra hires. When you feel that you are growing, that is the time to hire more people, not before that.
3.       Mind-meld with your CFO
Most people prefer fancy and shiny objects but a gifted financial captain can help you to steer to a clear path. He can administer a dose of reality. The key here is a good relationship between the founder and financial officer. Being with the CFO and discussing stuff with him can help make sure there is right alignment of risk and rewards.
4.       Build a war chest
You should have an emergency fund to run your home for at least half a year without any income. The startups must go with the strategy as well. It can involve cash, venture capital or lines of credit. This should ensure that the company can run while it faces a situation of zero cash inflows.
5.       Don’t be penny-wise, pound foolish

Bootstrapped businesses are great at growing lean. Yet the flipside is full with worries about being cost effective rather than spending cash on things that will restrict growth. The risk of overplaying your buildup could be worth it. You need to be smart for it.

This article has been contributed by Simmi Setia, Content Writer at LegalRaasta, an online portal for GST Software, GST Return Filing, GST Registration, Section 8 Company Registration, Nidhi Company Registration, IEC Registration, Fssai License, File ITR Online.

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