Running Out of Cash
More than 90% of early stage startups find themselves with two weeks of cash in the bank at some point in their existence. For most startups, their largest expense is payroll and it is a payment that is generally due every two weeks here in the United States — hence the two week mark is perhaps the most memorable for most entrepreneurs. What no one tells you is what you should do when you find yourself in this situation. That is about to change.
Step One: The first thing you’re not going to want to hear is that you need to terminate everyone (even yourself) right now. Don’t wait two weeks and then fire everyone — do it right now. Depending on your size and stage, two weeks of payroll could be a real number — enough money to help you get to the next place you need to be. Once you hit the two week mark the ONLY reason you’re not breaking the news to your staff is your ego. No one likes to fail and a failure that involves millions of dollars and the lives of your employees and their families is even worse.
Step Two: Talk to a bankruptcy lawyer. If you’re down to two weeks of cash, your company may not be bankrupt, but you are insolvent. Previously your obligations were to your shareholders — at some point your obligations will shift to your creditors and your employees. You might be violating your fiduciary duty by even paying your outstanding bills — don’t do anything before you talk to a lawyer.
Step Three: Make sure you fired everyone. Did you not fire everyone? Do it right now. Seriously, don’t wait, there is no reason to wait. If you end up raising that extra million dollars you can rehire anyone you need to rehire. Waiting will reduce the chances you’ll be able to save your startup.
Step Four: No seriously, fire EVERYONE. I know you thought those guys were irreplaceable, but you’ve got to fire everyone. I’m not kidding.
Step Five: I’m not fucking kidding. You have to fire everyone. You’re not doing anyone a favor by delaying. Do your fucking job.
Step Six: Meet with the bankruptcy lawyer. No seriously, schedule a meeting right now.
Step Seven: Think about your business as a set of assets. Think about what exists today, not what you could build tomorrow. What is it worth as it sits? That is now the new valuation. Begin talking to investors about investing in those assets as a NEW business opportunity. Raise capital and exploit this new opportunity. Let go of the past.
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