Cash Flow Survival. Guide for Startups: A Q&A with Finance Expert George Wollaston

Jen: George, I keep hearing that most startups fail because they run out of cash—even if they’re profitable. How is that possible?
George: Great question, Jen! Imagine this: Your SaaS startup closes a $500K deal. You’re “profitable” on paper, but your client pays in 120 days. Meanwhile, you’ve got $200K in server costs and salaries due next month. Profit doesn’t pay bills—cash does. Let’s break down four focus areas to prevent this.

Focus Area 1: Sales & Sales Administration

Accelerating Cash from Customers

Jen: Sales bring cash—why is administration part of this?
George: Because delays in paperwork create cash gaps. Take BakeryBox: They secured a $60K corporate contract but took 3 weeks to invoice. By then, they’d missed payroll. Here’s how to fix this:

• Example: Negotiate 30% upfront for contracts >$20K (like DevSprint did to cover cloud costs).
• Admin Hack: Use tools like QuickBooks to auto-invoice upon project milestones. Delay = risk.

Jen: What if clients push back on upfront payments?
George: Offer a 5% discount for net-15 terms. DesignCo did this—their cash conversion cycle shrank from 90 to 22 days.

Focus Area 2: Supply Chain (Inventory & Procurement)

Freeing Trapped Cash

Jen: We’re a hardware startup—how do inventory and procurement hurt cash flow?
George: Overstocking kills startups. GadgetLab ordered $150K of parts for “bulk discounts,” but 50% gathered dust for 8 months. They couldn’t fund marketing. Solutions:

• Inventory: Align purchases with actual sales forecasts. EcoGadgets reduced stock by 40% using just-in-time delivery.
• Procurement: Never pay upfront. BrewCraft negotiated net-60 terms with suppliers—matching their receivables cycle.

Jen: What if suppliers demand deposits?
George: Leverage competition. StyleBox told Supplier A: “Supplier B offers net-45—match it or lose our business.” They saved $80K in trapped cash.

Focus Area 3: Projects, Management & Culture

Building Cash Discipline

Jen: How do projects and culture affect cash?
George: Projects bleed cash silently. HealthTech AI had a “prestige project” that burned $300K/month—starving other teams. Fixes:

• Project Tracking: Assign cash budgets per initiative. FinApp capped projects at 20% of monthly cash reserves.
• Culture: Make cash visible. SolarFlare’s CEO shares cash dashboards weekly. Result? Engineers cut server costs by 35%.

Jen: How do I prioritize projects?
George: Use the Cash Impact Score: (Revenue Timing) ÷ (Cash Burn). Scores <1.0 get paused or redesigned.

Focus Area 4: Finance & Overdues Management

Debt: Burden or Lifeline?

Jen: Finance seems reactive—how do we get ahead?
George: Finance is your radar. EcoWear had $200K in receivables overdue 90+ days. They nearly collapsed despite $1M in orders. Action plan:

• Overdues: Automate reminders (e.g., Zoho). Escalate >60-day debts to founders—PrintHub recovered 92% this way.
• Debt Management:
• Burden: High-interest loans sink startups. FoodTech took a 24% APR loan for equipment—their $50K interest crushed them.
• Enabler: Strategic debt saves lives. MedDevice used a 6% term loan to fund FDA trials. Their $2M revenue jump covered the debt 10x over.

Jen: When should we use debt?
George: Only for revenue-generating assets (e.g., factory equipment) or growth catalysts (e.g., inventory for a confirmed bulk order). Avoid debt for salaries or R&D.

Real Stories: Why Cash Flow Trumps Profit

George: Remember FreshBites? A profitable meal-kit startup. They scaled too fast:

• Took net-60 from grocers but paid farmers net-10
• Over-ordered packaging ($120K stranded)
• Ignored a $90K overdue client
  They went bankrupt with $400K in unpaid orders.

Jen: How do we avoid this?
George: Implement the Cash Flow Power Hour:

1. Weekly: Review receivables/payables aging (Top 5 each).
2. Monthly: Stress-test cash for 3 scenarios (e.g., “What if 2 clients pay late?”).
3. Quarterly: Renegotiate 1 supplier term and 1 client payment term.

Jen: Any final advice?
George: Profit is vanity; cash is sanity. Track your cash runway like your life depends on it—because your startup does.

Key Takeaway: 82% of startups fail from cash flow mismanagement (U.S. Bank Study). By mastering these four focus areas, you’ll join the 18% that thrive.