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How Founders Should Think About Cash Management

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How Founders Should Think About Cash Management

a16z,

5 min read
3 take-aways
Audio & text

What's inside?

Prudent cash management is critical to the survival and development of a fledgling enterprise.

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Editorial Rating

8

Qualities

  • Analytical
  • Applicable
  • Background

Recommendation

A start-up is always a risky endeavor, and so Andreessen Horowitz professionals Seema Amble, Melissa Wasser and Emily Westerhold offer entrepreneurs a useful primer on a new business’s most basic need: solid cash management. Cash is the lifeblood of a new business, and knowing its sources and uses is what distinguishes the successful start-up from the rest. Entrepreneurs will find this concise report a useful aid for developing a consistent process that accounts for a firm’s cash needs in both the short and long terms.

Summary

Proper cash management begins with an understanding of what cash is and is not. 

Understanding the nature of cash is critical to financing a new business. Cash that is in the bank and readily available is the most liquid. Other forms of cash – like accounts receivable, electronic payments yet to clear, or earned revenue not yet billed or collected – often carry some restriction. From an accounting perspective, cash is recognized on either a cash or accrual basis. Whereas the latter recognizes income and expenses when earned, cash basis accounting identifies inflows and outflows when they actually occur. Cash comes in and goes out due to operating activities, such as customer revenue, salaries and marketing expenses, as well as financing activities that arise from debt or equity funding rounds.

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About the Authors

Seema Amble, Melissa Wasser and Emily Westerhold are partners at Andreessen Horowitz.

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