In 2014 we were doing everything and nothing right. Fist bumps and high fives as our bank balance ticked over $1m in cash. Growth and more growth. We’d come from nothing to more than $3m in revenue across a combination of product and service offerings. One office became two. Two small offices became one bigger office. Shifting, moving, hiring. The spreadsheet we’d used since day one was on version 12. What we didn’t see, until it was too late, was that we’d carpeted ourselves into a corner. Our cash reserves were based on promised deliverables for a large project and our hiring had grown disproportionately.
Two months into the project we noticed that the financial model we had made that showed a steady growth rate over 12 months wasn’t lining up to where we really were. It required an unravelling of the monthly numbers to understand in detail where things were derailing. And those two months were costly. Four months into the project we let go of 10 staff, a mixture of employees and contractors, in order to return to positive cash flow. I vowed I would never again mismanage the business and finances and set about creating a process to ensure we didn’t.
In a way, the $1m in cash and our steady growth up until that point distorted where we were as a business. Our financial model and meetings as a management team made it feel like we were being disciplined and responsible. The reality is, as Founders, we need to be responsible for and across everything. Finance and cash management aren’t the reason you got into the business but it’s unfortunately one of the causes of going out of business.
It’s easy to manage finances when the “number goes up”. However, fair weather sailing is not a test of one’s mettle it would seem. The following are some of the lessons we learned based on mistakes made over the years in business.