Hello, this is Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.

The most important financial statement is the cash flow statement because cash is the most important financial metric for the business.

If you run out of cash then you most likely will have to put the business on hold or shut it down entirely.

There are two ways to account for cash: cash-based accounting and accrual-based accounting.

As a startup, you’ll want to focus on cash-based accounting as it matches expenses with cash more tightly.

The cash flow statement will give a runway number of months of operation.

Run what-if scenarios based on different outcomes of the sales funnel.

If your runway falls to six months or less, you must take steps such as launching a round of fundraising.

It’s also helpful to understand your costs — you have variable and fixed expenses.

Variable expenses rise and fall with sales activity, while fixed expenses stay the same regardless of activity.

In the early days of the startup you want to push as many expenses into the variable side as you can. As you grow larger, you’ll want to move from variable to fixed expenses as the overall cost will be lower. 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.
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Disclaimer:
Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.