Getting investment capital in the door is a huge feat. It's a challenge of time and emotion. Once its in the door you'd think you want to celebrate but in fact as soon as you accepted the money you just switched on a time bomb.
Business finances always break down into time and money. The intention of investment capital is to provide growth capital. How do you grow? You expand your resources. You hire more people, start manufacturing lines, stuff warehouses with goods, initiate R&D, rent more office space, buy machines, buy vehicles and hire consultants. Its always shocking to run a cash flow report after the first month of "binge spending" to see how much "water" drained out of the bath tub in such a short time.
The timer on the bomb is ticking and you have three outcomes. You either defeat the fuse and execute your plan to profitability. You arrange a new round of funding to follow the previous one and reset the clock. Your business explodes.
If you thought raising money was stressful just wait until the first time you suspect you've fallen behind the clock. That big sale that just can't quite get signed. That R&D manager who let's you know the project is delayed - again. The manufacturer that calls you up about that one little tiny part that is "constrained" and is holding up your whole production line. The shipment delayed in customs. The employees that ran off to start a competing company and took some clients with them. Stuff happens and will happen. The true danger is when you start getting low on funds. At the point the time bomb is close to exploding you will either have to negotiate additional funding in a desparate position, you'll have to slash and cut spending to the bone to buy more time or you'll lose your business. Unless you are one of the very rare flawless executioners of growing businesses the best strategy is to be proactive and even a little bit paranoid of the time bomb.
Have a financial forecast and update frequently.
You should have a spreadsheet model of your cash flow and forecast it into the future. You don't need more than three years forward and you need to really be on top of the forward forecast of 12 months. The near term will take care of the long term in this case. In the model you'll have a whole bunch of assumptions on cash generation and costs. After you've rasied funds you need to update that forecast on a weekly basis to see how your cash flow projections are holding up. The spreadsheet should have interrelated data cells. As you change numbers it should cascade changes both in the current time period and out into the future. When someone raises a question on changing your plan you need to plug those numbers into the spreadsheet and see how it potentially will affect your cash flow. This spreadsheet is your soothsayer. Consult your soothsayer often.
Raise more money than you think you need.
Your financial assumptions will always be wrong, always. Everything will cost more, take longer and be less effective than you think. It takes relatively the same amount of effort to raise $2 million as $1 million. Whatever your financial forecast projects you'll need at least a 25 percent contingency. If you can get the extra money in your fund raising at the start you'll be better off. You may think, "okay then I'll ask for double or triple." You'd be wrong in that assumption. If you try to raise far more than you need then you'll have to give up lots more of your business than you should or investors will think you're just plain nuts and won't fund you. If you as an owner want to retain the most of your business at the end of all the funding and retain control then you can't go "hog wild" on money raising. There is a balance you need to find but plan a contengency amount.
Always look for ways to delay spending or spend less.
You need to always ask yourself "do we need this and do we need this now"? You need to spend money to grow the business but its very easy when the big check comes in to get antsy and want to execute as much as you possibly can right away. The difference in a good operator and a poor one is having a good operational plan and understanding the correct order of things. If delaying a spend doesn't wreck your plan then delay that part of your plan. In the dot com days I'd do a lot of business development deals. I'd meet with potential dot com companies and I'd swear half the executives had the titles of vice president or directors of business development. They typically only needed one person and instead I'd meet three of four of them. It was wasted money. They would chase bad deals. Everyone was excited and wanted a big deal pipeline but they couldn't handle the execution. Don't be that kind of owner. Do your own business development until you know its really time to hire a head. Pay your warehouse staff overtime before you hire the next person. Make sure your R&D has hit very specific milestones before you initiate your manufacturing processes. Be smart and be wary on every new "turn of the dial" when it comes to spending.
Arrange for different types of capital and discounts.
The best time to look for money is when you don't need it. When you get that big funding check you need to stick it in a bank somewhere. That is the perfect time to negotiate a business line of credit. The bank will want the deposit and they will be very pliable. Use that line of credit and keep the cash in the bank. Its also the time to negotiate company credit cards, interest rates on loans, etc. For any crediting lender they'll want to see your bank statements so the best time to show them is when you're flush with cash. It's also the best time to arrange your vendor net paymnet terms. Net payment is the float period between the time something is received by you and when the payment is due. The longer the Net terms the slower the cash burn. This is also the time to negotiate discounts based on a new increase in purchasing volumes. As you ramp up your business you'll be getting more rental space, more computers, more office supplies, more inventory, more everything. Leverage that point with your vendors for discounts.
Never stop fundraising.
You are always fundraising. Never stop. Always look to expand your network. Always take business lunches. Always update your financial projections and plans. Always look for different kinds of investors and in new areas of the country. There is never a good time to rest on your laurels if you're business is not cash flow positive.
Create contingency plans in all of your key planning steps.
Depending on your business and your business plan you will have several "choke points". These are parts of your plan that if something goes wrong it delays everything else. A delay in plan is an extension of the time in which you are burning money. Your extra contingency of cash will help but you don't want to do that unless you absolutely think you need to. For every choke point you need a contingency plan. If you have a key vendor then have a back up vendor. If you are developing software then have functions that can be "lopped off" to reduce scope and complexity in case there is a delay. Secure key manufucturing components up front so you can't get slapped with inventory constraints. Have more than one person have key pieces of knowledge so if "they get hit by the ice cream truck" you're not delayed. BE PARANOID.
Create a cash watch.
Forget about accrual accounting as concerns the status of your business. Cash flow, cash flow, cash flow. You need to create a simple document that tracks your cash status. This is different than your financial or forecast model. This is a few lines that track cash in the bank, receivables and money spent. Yes, it's that simple and it can make all the difference in the world in knowing where you stand. Share that information with all the key people in the company. Let them know how their actions, both good and bad. affect the company's financial status. Too many owners keep that information under their vest.
Create a metric and action plan for "T minus".
There is always a point in dramatic movies where there is the "critical point" in a countdown in diffusing a bomb. T minus and everyone holds their breath. You need to create your own critical cash count down. It could be $250,000 and it could be $1 million that's the trigger. It depends on your business. This is the threshold on which you have a plan to significantly slow down your cash flow spend to extend the existence of your company. This is the plan no one wants to put together because it involves not paying, partial paying and delaying payments to vendors. Employees are laid off and/or across the board cuts in pay occur. It is a horrible time. But you can do it. Just know that when you make the cuts, cut as deep as you can because you only want to do this once. Create the plan. It won't take long.
Congratulations on raising your funding! Now the real work begins. Be prepared and "watch the fuse".