Four in ten start-ups fail in the first five years of the business and a significant factor behind that high failure rate for early-stage businesses is a reluctance to manage cash flow effectively.
We sat down with Saija Mahon – founder and MD of Mahon Digital Marketing, business mentor and speaker on the international start-up conference circuit – to talk about start-ups attitude to financial management, spending investors money and why getting a handle on cash flow should be every founder’s key focus in the early years of the business.
Setting the right financial foundations
The initial years of running a start-up are a challenging time for any founder. There’s the excitement of creating your business idea, getting it off the ground and seeing those first sales rolling in.
But what many inexperienced entrepreneurs forget is the need for rock-solid financial foundations.
As a business mentor and a speaker at start-up conferences around the world, Saija Mahon has seen first-hand how a good start-up idea can be held back by poor cash flow – and how relying on cash from an investor can actually be a bad idea for some start-ups.
“I see this lack of cash flow management all the time, where start-ups don’t focus on getting financially stable. Many get so excited about their new product or offering – which is obviously great – but then they get lost in the investor world and forget about their core customer who would buy their idea, product or service in the future.
That pot of investor money is finite – ultimately you need customers to buy your products.
One part of this, certainly from what I’ve seen, is that start-ups don’t focus on the customer enough, or building up their go-to-market strategy – they think that the investor will pay anyway.
Yes, in the short-term, that works but not in the long-term if you want to be here in ten years time. You can’t just think that your investor will always be here, because they won’t.”
Investor money is a finite pot of cash
In the entrepreneurial world of growth hacks, pivoting and hyper-growth, it’s easy to see how start-up founders can be lured into thinking more about investment money than day-to-day income. But to quote the well-worn phrase, cash flow truly is the lifeblood of a healthy business.