5.04.FinancialFitness

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by Brad Feld While creating a growth business can be exhilarating, many entrepreneurs—especially those starting a company for the Frst time—donʼt pay enough attention to some core issues surrounding the Fnancial management of their businesses. continued > for Entrepreneurs ChangeThis Not using Adobe Acrobat? Please go to http://changethis.com/content/reader | iss. 5.04 | i | U | X | + | Fitness Financial Save to disk Hide/Show menus Y
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ChangeThis 2/9 | iss. 5.04 | i | U | X | + | Often, founders don’t have formal training in Fnance they’re “techies” launching the next Apple Computer or Netscape, professionals putting together advertising, management consulting, or human resources agencies, or super-salesmen types who’ve Fgured out how to sell a pizza or deliver a package faster, better and cheaper. Always, they’re intimately involved with their core product or service. Often, they are too busy to burrow into the details of some of the company’s functions, of which Fnance is the most critical. These entrepreneurs are savvy enough to know they must work with Fnancial professionals, such as their C±O and outside auditors or CPAs. However, no matter what their background or inclination about Fnance, founders need to have a working understanding of the basics. An elementary level of Fnancial literacy means they’ll work more intelligently with their Fnancial advisors and become the Frst line of defense for spotting potential problems in the young company. What follows are some fundamental Fnancial tenets that all early- stage entrepreneurs should be aware of, understand, and heed.
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ChangeThis 3/9 | iss. 5.04 | i | U | X | + | CASH IS KING No matter what, donʼt run out of money. Nothing else in this article matters if you run out of money. This means know your burn rate (the net cash that is flowing out of your business each month) and be aware that your low cash point for any given month may not be at the end of the month. In other words, donʼt get caught planning based on full month Fgures only to Fnd that you do not have enough money to pay your most im- portant vendor on the 15th because your customers donʼt pay you until the 30th. PUT IN REAL FINANCIAL SYSTEMS FROM DAY ONE Lots of entrepreneurs Fgure that theyʼll “get around to putting in real Fnancial sys- tems someday soon.” Of course, that rarely happens, especially if no one on the founding team has a strong Fnancial background. The cliché, “Itʼs better to build on a strong foundation,” applies. Put the foundation in place early so that as your business
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