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5 Hard-Earned Cash-Management Lessons for Entrepreneurs After facing his darkest entrepreneurial days, this contributor learned that fiscal responsibility grounded in the long-term view is what pays the bills until success pays them for you.

By Marc Fischer

Opinions expressed by Entrepreneur contributors are their own.

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An age-old story is playing out on the IPO stage: Domo, a Utah-based unicorn, went public in late June with results that could be viewed with cautious optimism. But, behind the scenes, there were plenty of red flags.

Specifically, this startup business analytics company was valued as high as $2 billion. But, en route to its initial public offering, Domo's valuation eroded by 75 percent. A major factor was how much money the company was spending. Compared to the $690 million it had raised, the company's annual revenue numbers weren't strong. The result was a cumulative debt of $803 million. Simply put, Domo was short on cash.

As a public company, the challenge Domo faces is now highly visible. But the pressure of balancing funding and spending before there's a steady stream of revenue is immense, no matter how big or small the enterprise. I know -- I've got the battle scars to prove it.

Five keys to cash-flow management

It's an initiation of sorts for most entrepreneurs: the day the company bank balance doesn't cover the bills or payroll. Starting out, my mobile technology company was months away from piloting a new product that would generate outside investment. Plus, several current clients weren't paying on time. Still, payroll came due twice a month, no matter what. Saying that that period was a stressful time is a major understatement. I felt like nothing was going right.

It came down to the inevitable choice to go deeper into personal savings to keep my team paid and the lights on: That was an easy choice but not sustainable.

For the next round of payroll, the choices were much more limited. Thankfully, though, my team wasn't going down without a fight. Perseverance, a lot of hustle and a little luck helped us land a new client just in time to keep oure bank balance in the black.

Related: What I Learned by Spending $650,000 on My Credit Card Last Month

The experience came with hard-earned lessons on how to anticipate financial emergencies and create a cash cushion. Here are those five lessons:

1. Line up credit -- now.

Cash-flow issues are relatively common and universally painful. According to research by WePay, four in 10 businesses surveyed had faced cash-flow challenges in the previous year. Most business owners said the financial and emotional impacts were severely consequential for their businesses.

Establishing a go-to line of credit, therefore, is essential. It works like a credit card, providing flexible access to funds and the ability to use and repay them as needed. I recommend setting up a line to prepay accounts receivable and keep the business on an even keel when customer payments lag.

Banks and traditional lenders have more stringent requirements, including strong revenues and at least a few years in business. Online lenders ease up on some of the requirements but might charge higher rates or offer lower limits. In general, expect mandatory qualifications of at least six months in business, $25,000 in annual revenues and a credit score of 500 or better.

2. Save six times your expenses.

Be disciplined about building ample cash savings. Add up monthly expenses and multiply by six for a good savings target. If a multiplier of six seems unattainable, start with three times operating expenses. The most important thing is to save even when it's challenging.

For most small businesses, reality doesn't come close to the six-times rule. Research by the JPMorgan Chase Institute shows that 50 percent of small businesses have cash savings equal to less than one month's expenses. One-fourth have fewer than 13 days of cash reserves.

Figuring out how to save is pretty straightforward. Consult with the company accountant to determine an appropriate amount per month. Then, direct the money to a separate but easy-to-access bank account. If cash is tight, take a critical look at inventory to ensure it's not tying up too much money. Or focus on collections by rewarding customers who pay on time and penalizing those who don't.

3. Stay away from the nice-to-haves

Never forget that there are nice-to-haves and must-haves. Being prudent with the nice-to-haves can be the difference between what keeps the lights on and what pushes companies toward insolvency.

WhatsApp offers a case study in starting humble: As a self-taught programmer, CEO and co-founder Jan Koum put everything he had into developing WhatsApp. From the start, Koum and his co-founder, Brian Acton, shared a disdain for nice-to-haves. Their first offices were in a drafty warehouse where employees huddled in blankets to stay warm. They didn't invest in a lot of marketing and kept the focus on growing the company organically.

Fast-forward to 2014, when Facebook bought WhatsApp for $19 billion.

Prudence has been the watchword for my partner and me ever since our days on the couch dreaming up app ideas. From how to build out the team to how much to spend on marketing, every decision we make is based on the nice-to-have vs. must-have debate.

Related: How to Create a Budget for Your Startup

4. Keep spending on growth.

When faced with a downturn, a typical founder's first impulse is to cut back on sales and marketing. But if that sounds like you, stop and rethink the decision. Often, a short-term fix is what creates long-term problems. Instead, a continued or additional focus on marketing can help close sales and generate new leads to get the needed cash flowing in.

While there's no one secret to growth, a Deloitte survey found that CMOs surveyed were the primary drivers of growth and revenue generation for their companies. Twenty-seven percent of respondents said the CMO has the main responsibility for growth strategies, and actually ranks ahead of the CEO (21 percent).

5. Don't play the blame game.

There's nothing more stressful than not having enough money to pay the bills. This is when communication becomes absolutely critical. Believe me -- I know it's not always easy.

Right now, some close friends who run a startup are facing a major cash crisis. Instead of making the tough decisions together, the co-founders are pointing fingers and blaming each other. The company is about to implode as a result.

It's OK to disagree, but being respectful and hearing each other out is key. The most important thing is to put the best interests of the company first. My advice is to bring in a third party to help. Trusted consultants such as lawyers, accountants, or mentors can keep communication lines open and offer fresh perspectives.

Business post-mortems conducted by CB Insights provide the all-important reality check. Twenty-nine percent of startups shut their doors because they simply run out of money, CB Insights found. After facing my own dark days as an entrepreneur, I learned that fiscal responsibility grounded in the long-term view is what pays the bills until success arrives and pays them for you.

Marc Fischer

CEO and Co-founder, Dogtown Media

Marc Fischer is the CEO and co-founder of Dogtown Media, a mobile technology studio based in Venice Beach, Calif., which was named by Inc. magazine as one of the fastest-growing companies in America. He has more than a decade of experience designing, developing and launching digital products for tech startups and Fortune 500 companies, including Lexus, Google and CitiBank as well as the United Nations.

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