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
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.