Whenever I meet with an entrepreneur that’s raising money I ask about current funding, burn rate, and the number of months of runway. Managing cash, and understanding the corresponding business unit economics, are two critical functions of an entrepreneur, yet many don’t do it. In fact, ensuring that there’s always enough cash in the bank is one of the three most important things a CEO does.
Every month, entrepreneurs should be able to answer these three questions immediately:
- How much cash do we have?
- How much cash are we burning each month?
- How many months do we have until we run out of money?
Pretty simple, right? Only, many entrepreneurs I talk to can’t answer these three questions with confidence. Entrepreneurs need to understand the importance of cash and manage it accordingly.
What else? What are some more thoughts on the three simple monthly cash questions?