Last week, Food System 6 was joined by two experts from our community of mentors - Peter Herz (1st Course Capital) and David Guendelman (Do Good CFO) - to discuss best practices for financial hygiene and investment preparedness. Below is a list of tips, tricks, and best practices from the conversation, as well as the full event recording.
One of our favorite things is when experts from various disciplines agree on their advice! Here are a few of the tips and best practices that both of our speakers brought up in their presentations:
1) Cash is King. If you don’t understand your balance sheet, your cash position can get out of balance. With thoughtful balance sheet planning, you can maintain adequate liquidity to get you through the toughest of times. It's not just about your P&L, it's also about cash flow. You need to have a separate, rolling cashflow forecast tracking tool to know where you stand.
2) Reforecast frequently. A budget is only as good as the assumptions behind it - periodic reforecasting can help aid navigation. So long as you show adequate cash 13 weeks out, you only need to update this forecast occasionally (David recommended Quarterly, Peter recommends monthly). However, if you go negative within 13 weeks, you should be tracking it at least once a week.
3) Investors don’t like surprises. Be transparent with them and be sure to tell them ahead of time about risks, not after it’s too late. DO NOT show up saying that you are a week or two away from running out of money. With a quarter’s worth of runway, your investors, board members, and others have time to help. With only a week or two left, it may be too late.
4) Know your numbers. Investors will often ask questions around your financials like: What’s your annualized revenue run-rate? How much runway do you have before you’re cash-out? What’s your customer acquisition cost? Part of the reason that investors ask these questions is to understand your command of your business. Answer the questions with clear and short responses. If you’re asked a question that you don’t know the answer to, don’t guess. Tell the investor you will get back to them.
5) No margin, no mission. Keep in mind that healthy profits and a cash runway are fundamental to ensuring that your business will survive and be around to fulfill its mission.
In addition to their shared recommendations, each speaker brought their own experience and background to the table for more learning!
Tips From an Investor & Entrepreneur:
*Arrears accounting indicates that payment will be made at the end of a certain period, rather than in advance. (Definition from PayChex)
“If you say that you will achieve $1M in revenue next year, and you only achieve $800K, then you have failed. However, if you tell investors that you will achieve $600K and you actually achieve $800K, you’re a hero.” - Peter Herz
Tips From a CFO:
"Good Business Execs are T-shaped - meaning [they have ] depth in one functional area and breadth across many areas." - David Guendelman
Watch the full event recording:
About the Speakers
David Guendelman, Founder of Do Good CFO, is a seasoned veteran of social entrepreneurship who cares about both social impact and financial success. From prototype to scale to exit, he’s been there. He has over a dozen years of experience as a co-founder, CFO, and consultant to early stage social ventures. In 2004, he co-founded World of Good, a fair trade gift brand that scaled nationally, building distribution with Whole Foods, Hallmark and eBay, and was eventually acquired by eBay in 2010. Since then, David has worked with leading social ventures—Lotus Foods, Straus Family Creamery, Uncommon Cacao, Community Foods Market —as virtual CFO and strategist. He has worked alongside his clients in raising over $50 million dollars in equity and debt financing. He has a particular passion for social justice, boundary-breakers and supporting the underdog.
Peter Herz is a founding Partner at 1st Course Capital (1CC), an investment firm that seeks to create a significant positive impact on human health and the health of our planet and communities. 1CC is driven by the understanding that our food system is undergoing a massive transformation driven by the depletion of natural resources and the negative health impacts of an industrialized and processed food diet and that there is growing consumer recognition that those who feed us and what we eat matters not just for our health, but for the health of our planet as well. 1CC supports the innovations with the greatest potential to address the challenges we face in our food system with scalable and capital efficient business models and technological innovations. Peter is a serial entrepreneur, experienced executive, and Co-Founder of Food System 6 Accelerator.
FS6 is a nonprofit based in the San Francisco Bay Area whose mission is to support impact-driven entrepreneurs as they transform how we grow, produce, and distribute food. The organization runs a comprehensive accelerator program that mentors entrepreneurs by coaching them through a wide range of business and organizational needs. FS6 also works to educate stakeholders on the unique capital needs as it relates to redefining the food system.