Capital Assessment-

 

As a startup, you can probably do more with less cash, right?  Or, compared to having a lot of cash and not using it appropriately, which would you prefer.

Scenario:  A new business owner was happy to lease office space with a 3-year lease in a small business park.  This enthusiastic Entrepreneur furnished the office space with antique furniture, painted the walls, purchased nice artwork to place on these colored walls.  The business was a IT consulting company, where their clients required them to be onsite to consult with them, and their systems could be serviced remotely.  Even though this Entrepreneur had enough cash on hand to commit to a 3-year lease, buy furniture and more, do you think this was a priority?  Or was it important to start with a sales and marketing plan, hire a sales person first, or?

The basic rules apply with Assets and Liabilities.  Is spending your capital an asset or liability to your company and your own personal pocket book?  When, and how will it generate a 3X multiple when you spend it on your business?

Some startups have made thousands of dollars without the need of fancy business cards.  How much did you spend on your business card(s)?  If you had that extra cash, would you have spent it on other revenue generating avenues?

As an Entrepreneur, replace the words “Expense, Spent, Bought, Paid, etc.” and insert the word, “Invested”.  In simple terms, when and how will your $1 “investment” make you $3?

Also, never throw money to fix a problem, focus on fixing the problem.

True story—a funded startup had a training room without windows. One of the executives thought that it would be a great idea to seek out an artist, consult with them and have them paint a mural on the wall to brighten up the place, at a hard cost of $1,500.  That same startup executive want to purchase $8,500 on artwork for the other walls. By the way, the office space was a 2-year sublease, and the company barely generated their first sales revenues, it was not profitable.

Now, how much capital do you really need to get your business going?