Entrepreneurial Finance

The term “Entrepreneurial Runway” is commonly used by funders to ensure the entrepreneurs understand that they must have enough money to build a runway and take off, but also to come back and land safely.

Ever since COVID hit last year and things began to shut down, it became critically important for entrepreneurs to think about their finances in three ways:

1. How much cash do I have on hand?

2. How much cash do I need to spend weekly or monthly?

3. How much cash should I be investing in the business so I can create new revenue?

That’s really what it comes down to. If you’ve taken out a loan but can no longer count on your previous income, it’s time to consider how much of a runway you have to keep going before you have to pay that loan back. Have to pay it back now? What is your burn rate — that is, how much do you have to spend every month, in return of what you borrowed, to keep you going?

In the first days of COVID, many of us thought that in 4-6 weeks things would be back to normal. As things stretched on, we began to understand that our dollars needed to be stretched as well.

Finding new ways to do that is not easy, but they're needed keep the business fed, and we must come to terms with the fact that the cost of our products or services might have to change in order to sustain and maintain the runway.

EXAMPLE:

Here at ISM, we took on much bigger expenses in delivering programs via Zoom than we had when in person. We had to create the ZOOM accounts, hire someone to manage those accounts, create digital folders rather than distributing paper copies of files and workbooks, and more.

As an entrepreneur, you must figure out what new costs you will incur to keep your services or products viable.

Restaurants have to think about investing in igloos or pods, or other ways to deliver products or use a third-party delivery service — both at additional cost.

Understanding your finances is important, but you must also be clear about whether you should be thinking about investing in a new way to deliver your product or service.

As long as this pandemic continues, we must think about what we can sustain, and what new model we can create in order to determine the length and breath of our entrepreneurial runway.

BEFORE YOU GO

We see our blogs as opportunities for dialogue. Please share your thoughts as comments.

1. How will understanding the finances of your business help you stay in business?

2. What resources have you used to leverage the financial knowledge you have?

3. What insights can you share with other entrepreneurs regarding their finances?