Top strategies for managing and mitigating finance risks Start-ups don't necessarily fail because they don't have a good idea. They fail because they run out of cash and they often don't see it coming.

Cashflow and finance isn't about doom and gloom and CFOs don't necessarily always see a glass half empty. Rather, it's about control and managing risk. Startups and scaleups are innovative and flexible. Businesses can manage finance risks without losing sight of innovation and flexibility and it's best if it isn't ignored.

Aside from going out of business and running out of cash, there are many reasons why it's worthwhile considering finance risks and mitigating them. A good example is fundraising delays. During due diligence, a potential investor may pick up on the lack of control or other finance risks that hadn't been addressed by the leadership team and may delay the process or even pull out of the deal altogether.

Here are a few core strategies that all founders and finance teams within startups should consider when reviewing (or implementing) a finance risk management strategy.

1. Keep the lights on by understanding cashflows: There are a few items that can be implemented immediately and this includes having a rolling 3 month cashflow forecast that is updated weekly. This will allow the business to understand the cash nuances over a short period of time. The business should also review any outstanding receivables. Is there a strong credit control process? Or do you allow customers to pay, well past their due dates? Longer term, the business should look at a high level longer term cashflow forecast that is updated monthly (if the business is quite volatile) and spans the next 2 years. Review any overhiring, over investing, and allow for funding delays. The business should also review its cash conversion cycle and make changes accordingly. Does the business need to pay for all its expenses upfront, yet it receives revenue 3 months later? If so, there are going to be serious cashflow issues if the business wants to scale rapidly.
2. Understand the business's unit economics: At all times, the business should understand how much it costs to serve a customer and how much it costs the business to acquire the customer. If the revenue received from the customer exceeds these two costs, then the business can scale. If the opposite is true, the business will need to address this before it can scale too quickly, otherwise it will have cashflow issues and may always be reliant on investor funding.
3. Cash runway and Burn control: Along with creating a cashflow forecast, the business should also understand how much cash runway it has. Cash runway is how many months the company has cash or how long until the business runs out of cash. For example, if the business is burning £100K per month and they have £1 million in cash, then based on this cash burn rate, it will survive for another 10 months (£1m / £100K = 10). Knowing the cash runway early, allows the business to be prepared for the future. Does the business need to fundraise (equity / debt), does the business need to make redundancies or cut costs? Does the business need to increase revenues or prices to extend the runway? Just a side note, with volatile, early stage, or fast growing businesses, the burn multiple (such as the example above) won't work for calculating cash runway as the cash burn rate each month changes. Instead, a 2 year rolling forecast will need to be created to calculate the cash runway more accurately instead.
4. Don't Ignore Internal Controls: Often having an early stage, dynamic and resource light start-up includes a limited or non-existent internal controls policy. Unfortunately, this increases the liquidity risk many fold. I have personally witnessed the aftermath of lax financial controls, including tens of thousands of pounds lost to a fraudster or hacker, and tens of thousands of pounds extracted from the company via negligence and human errors. It takes a long time for a startup to raise or sell this kind of cash and which can disappear so quickly when there are no controls in place. Rethink this strategy.
5. Know when to bring in Finance Leadership: A CFO or finance director is often the last addition to the leadership team. However, this person can offer much more than fancy looking financial statements. Even if you can't afford a full-time CFO, fractional leadership or advisory help. Financial leadership ensures that the liquidity & finance risks that the business is facing is properly mitigated, as well as helping the leadership team head in the right strategic direction. A CFO ultimately helps founders and businesses maximise growth and minimise risk and should be part of the leadership team early on.

• Once the core product and revenue stream is established, look to diversify revenue streams through products, services, customers or regions.
• If operating internationally, ensure that there is a FX strategy
• Ensure that compliance and tax are managed properly