84 Cash, Financeability, and Control
Does the company have a controller, or a control mechanism, with budgeting, hiring, and spending processes in place to manage cash for both the current and next stage and control its spending as it enters the product development stage?
When the company opens as a full-scale entity, it is likely to be flush with a large amount of cash ($5 million to $10 million). At this point, there will be an enormous pent-up demand to hire direct and support staff and buy equipment, parts, and computer resources. Unless the firm has controls in place or is operating according to a detailed budget, it can easily begin spending vast sums right away for critical items and thus find itself out of control from the moment it starts up.
CONCLUSION
Cash, financeability (the ability to get more cash), and control (the ability to produce results, including profit, with the cash and resources a company has) are all inter-related.
Without cash, the venture cannot proceed beyond the "kitchen table" planning stage. At least one founder must be self-supporting while the business plan for the seed stage is written. Later on, when the founders have spent several months in the seed stage planning the company and writing the business plan, the start-up must have a large enough cash cushion to wait out a period of at least three months while financing is sought. However, even if an enterprise has the necessary cash cushion, if it lacks control, its cash will ultimately decline to zero and the firm will be unfinanceable.
Without financeability, a company cannot continue to implement any plans or vision that it may have. Financeability is determined by both exogenous and indigenous factors. Although the firm can only respond to what it believes are the exogenous factors, it has total control over the indigenous factors-its business, as embodied in the technology it selects, the product it builds, its plan, its people, and other dimensions. The best guarantee of financeability is for the start-up to be in control and to have adequate cash through planning and profitability. Getting out of control and starting to deplete cash will put the venture on a downward spiral.
Control is the start-up's combined ability to make an effective overall business plan and then be able to operate in such a way as to achieve the plan. Control is measured quantitatively by how closely the company's actual operations match its plan in both the expenses and revenues lines on the profit and loss statement. Control is also measured qualitatively by how the company manages itself with respect to the objectives it has established for products, employee satisfaction, service, etc. Being in control is at the heart of preserving cash and financeability. But being in control is moot if the company is out of cash and not financeable.