7 Myths about Startup Cash Management

Thanks to Ali from Vertical CPA for collaborating on this piece.

Cash is king.

But there are 7 myths about startup cash management that hurt founders’ wallets.

Here’s the truth and why this 3 minute read is worth millions for your startup.

But first, what is “treasury management”?

= how businesses handle their cash

This includes payroll. Or what to do with your long-term spare cash.

There are big misconceptions about that $5mm of spare cash in your checking account.

Let's fix that…

Myth 1: “Treasury management doesn’t matter.”

For startups, cash management was meaningless when VC dollars were free and interest rates were low.

That’s not true anymore.

Founders and investors are focused on runway and burn.

And proper cash management can turn your idle $10 million into $470,000 to…

• Extend runway

• Hire more engineers

• Turn a finance team into a profit center

But…

Myth 2: “Cash management is dangerous!”

Yes, you aren’t running a hedge fund with investor cash.

Startup cash management starts with 3 S’s:

• Simplicity

• Safety

• Security

You’re “stuck” with ~4.7%* U.S. Treasury Bills and money market accounts.

Everything else is too risky.

Myth 3: “My money is locked up!”

Savvy cash management starts with a checking account for day-to-day payments.

And spare cash gets stashed in places to earn 3-5%.

Lack of liquidity is a myth.

If you can’t pull out your cash within 1 day, you’re in the wrong place.

Myth 4: “My investors will be upset”

Do you know what investors love?

Frugality + fiscal responsibility

A founder that spends 15 minutes on their spare cash is applauded.

Investors say:

“Wow, Jimmy is a smart steward of capital.”

Ha ok maybe it’s not that cool

Myth 5: “Rates are rising. I should wait!”

An old adage with stocks:

“Timing the market is for fools.”

No one knows what will happen next.

• Not Goldman

• Not JP Morgan

• Not your minivan-driving neighbor

Do you want to play Interest Rate Roulette?

Or go back to building.

Myth 6: “Inflation is no big deal!”

For founders, your daily fires are endless.

So why worry about inflation?

Because it’s a crazy cost for your business.

With inflation at 10%, $10mm you raised in 2021 is only worth $9mm today.

And getting worse:

Myth 7: “Investing is so complicated!”

Wall Street tries to turn investing into rocket science.

It’s not for startups.

Key:

Conservative while generating a reasonable return.

Your 3 core tenets:

• Protect principal

• Generate reasonable return

• Keep liquidity

1. “Treasury management doesn’t matter”

2. “It’s dangerous”

3. “My money is locked up”

4. “My investors will be upset”

5. “Rates are rising”

6. “Inflation is no big deal”

7. “Investing is so complicated”

Avoid them and you’re golden.