“We have to ask ourselves the question, Are we going to be a company that spends freely, or are we going to be a company that manages its money well?” I said to the executive staff in our weekly staff meeting.
We had just received our initial funding a few months earlier, but I wasn’t seeing the fiscal discipline from my co-founders. Instead, I had been seeing various requests to spend money on things that we just couldn’t afford.
There was “Randy’s” plan to spend $300,000 on a new ERP system when we could use a combination of Excel and Quickbooks for a fraction of the cost. There was “Ken” who seemed to be trying to charge everything he could think of to the company on his expense reports, even if it wasn’t something that should be charged to the company.
You, the CEO, set the tone for how your company will spend its cash.
I didn’t like the way things were trending. I knew that if I didn’t put a stop to it our spending would be out of control.
That was something I couldn’t let happen because burning through our cash too quickly would mean we wouldn’t achieve our key objectives before we needed more funding. So, you see, managing your cash well is pretty important if you want to stay in business.
That’s why I was making a big deal out of a seemingly small thing (Ken’s desire to expense small items to you usually wouldn’t expense). To me, it meant everything.
As CEO, I had the control over how we were going to spend our money. And there was no way I was going to let us spend money like drunken sailors. The message to my team was clear: You either get on board with the concept that we were going to be appropriately frugal, or you could leave the company.
You become appropriately frugal by being smart about where you spend your cash.
Executive chefs, worthless schwag, and wild parties were out. However, that didn’t mean we wouldn’t spend money where we felt it was appropriate to spend money.
For example, free lunches were in because we felt it would improve the productivity of the team. And, if we felt a tool would help the productivity of our engineering team, then we’d likely find a way to buy it. We were in the business of pushing the boundaries of what could be done, so you spend money to improve performance.
Your investors shouldn’t be a factor in how you spend your cash.
You’re probably doing the wrong thing if you’re worried about how your investors will perceive how you’re spending your cash. Think about it. Let’s say you’re going to spend $50,000 on a party to celebrate your launch when you have $100,000 left.
You really want to have a big party, and you know, in your heart of hearts, that the return on investment for that party will be really low. Yeah, everyone will feel really good for a few days, and maybe productivity will improve for a bit. However, you’ll be out of cash before you know it.
Do you really need your investors to tell you that’s a bad move? Good, I didn’t think so.
Instead, you should be smart about how you’re spending your cash. Have a financial plan and stick to it. Get your team to be just as disciplined as you are.
Finally, make sure you do spend money where you can improve the productivity of your team. That’s a winning formula for managing your cash and improving your chances of success.