in today’s episode of the startup chat, Steli and Hiten talk about how to improve cash flow during a crisis.

One of the effects of the COVID-19 pandemic is that a lot of businesses are going to have problems with their cash flow. This could be as a result of customer cancellations or non-payments, and how you manage your cashflow in this crisis could make or break your business.

In today’s episode, Steli and Hiten talk about what cash flow management is, some things you could do to improve your cash flow, how to manage your cash flow during the crisis and much more.

Time Stamped Show Notes:

00:00 About today’s topic.

00:31 Why this topic was chosen.

01:35 Some things you could do to improve your cashflow.

03:54 Why you should talk to a finance expert if you want to learn how to read your P&L statement.

04:17 Why you should look at your P&L statement on regularly.

05:38 Why it’s important to know how much money your company is burning and how much is in the bank.

07:00 The number one thing to understand about cash flow.

07:50 How to manage your cash flow during the crisis.

09:26 How prepayments can help you with your cash flow.

12:08 How cash flow management is a never-ending process.

3 Key Points:

  • Learn how to read a profit and loss statement.
  • Talk to a finance person.
  • Understanding how to read a profit and loss statement is something founders need to know.


Steli Efti: Hey everybody, this is Steli Efti.


Hiten Shah: And this is Hiten Shah. And I’m going to let you say it, Steli.


Steli Efti: Cash is King.


Hiten Shah: Yes. So, that’s what we’re going to talk about on the startup chat today. And yeah. Wow. That statement is more true than ever.


Steli Efti: Never is cash more king during a crisis, right? I mean, it’s always king, but during difficult times, even more so. So, we thought it might be useful for us to just share a couple of things that we have either done ourselves with our businesses or have seen others do successful during these times in order to improve their cash positions, to improve their cashflow, to just strengthen their companies and their startups to financially be able to make it through whatever rough waters we still have ahead of us, right? So for you, if I come to you Hiten and I’m like, “Hey, I have a startup. We have revenue, we have customers, we have costs. We need to improve our cashflow position.” What are the go-to tips that you would give? I know that this is, every case is different, but in general, what’s some of the things that you’ve seen people do, or you’ve done yourselves with your companies that can make a big difference during these times on improving cashflow.


Hiten Shah: Yeah. I mean, Oh God. The reason I say that is, sorry God, but is… Wow. There are founders and business people out there that have said they get confused when they look at a P&L, a profit and loss statement.


Steli Efti: Mm-hmm (affirmative).


Hiten Shah: So, step one, stop saying that. It’s not a tool you need, you just need to go spend the time, get your P&L for dummies book or whatever, and learn how to read a P&L. It is not hard. Full stop. Period. I could teach my ten-year-old how to read a P&L if I needed to. And so, I know I’m getting a little serious about this shit, but man, I get so frustrated when I hear someone tell me that they’re a business person, they’re responsible for cash, and they say that the P&L or whatever accounting statements or whatever confuses them. It’s like, okay, well, it’s your responsibility. This is your job. Managing cash is your job. Even if you have a finance person or whatever, you happen to be lucky enough to have that scale or whatever-


Steli Efti: Hey, Hiten?


Hiten Shah: Like recently, she was reviewing something with me because usually I don’t have to review those things. And we were just reviewing and she literally said, “Do you understand this?” I’m like, “Yeah, I know how to read these, just because I haven’t had to read them like you do every day or every week or whatever,” because she does taxes and manages the finances and all kinds of stuff for all of our businesses, as well as personal. I’m like, “I know how to read it. In fact, I get excited to read these.” So, again, just cash in, cash out, where you’re spending the cash, that’s all a P&L really is. Nothing else. And it’s categorized in a way that might be confusing for you. So, just figure out what those categories are and what they really mean. Because honestly, every company uses those categories slightly differently anyway. Just figure out how you need to use it or how you’re using it. Or go talk to a finance person on your team or an outsourced finance person or whatever, and just make sure that you can ask them the questions to understand what a P&L is and what it means to your business. And even things like accrual accounting and cash base and all that, it’s not hard stuff. It’s stuff you need to know. So, I would even stop this podcast and go figure that shit out if you don’t know, because otherwise, you’re not going to be able to manage cash if you can’t look at statements, if you can’t understand a profit and loss statement, if you can’t get into QuickBooks and at least get to the reports, if not go deeper in. It’s not hard. And it’s frustrating to hear founders and people think it is. And then, also outsource it because that’s when all the problems start when it comes to cash management. So, my big number one thing is just learn how to understand it. And then, the second thing I would say is look at it at least on a monthly basis, if not weekly. Usually monthly is good, but the thing is if whoever’s responsible for it, especially if it’s in QuickBooks and things, they can stall that and not have to look at it for like quarters, even six months because it’s just happening and you have enough cash, let’s say. And I know that sounds absurd, but that’s the norm. So, I force everybody. My wife is kind of forced, so to speak, into making sure we can see it on a monthly basis for every one of our businesses, no matter what. And then, sometimes you might want to look at it weekly. Another thing I would say is, it’s good to have a spreadsheet with the expenses in them that isn’t in a P&L format and have some level of hygiene of keeping that up to date, because one other important thing, which if you don’t have it at the top of your head is you always want to know how much your company is burning every month and how much is in the bank. You want that idea. You want to know a rough idea of that, if not a specific idea of that. If you don’t have that, that’s a problem too. So, it’s not just about these times. I think this is the most ridiculous thing that I’ve heard from people. And I hear it way more than Steli you might imagine. And maybe you’ve heard it a lot too. So anyway, that’s my mini rant. To start.


Steli Efti: Nice. I love it. All right. So, I mean everything you said I would sign. I don’t hear this as much because people don’t come with that kind of advice to me usually. But, I’m not surprised about it at all. So, step one, get financially literate, right? The best time was 20 years ago to plant a tree; second best times’ today, the old Chinese proverb. So, it would have been great for you to be proficient in these things when you started the business. But if you haven’t, today’s the second best day to get started with this. And the second thing that you said that I want to highlight is, you want to check those numbers. I mean, during this time, I would highly encourage people to do that more frequently than you would usually, more frequently than you’re comfortable with, whatever that is, right? If you used to check them monthly, check them bi-weekly now. If you used to check them bi-weekly, maybe you should check them weekly right now. But just do it at a higher frequency. Make sure you are very much on top of your numbers, so that if things start going astray, you see that coming way ahead of time and you can act and course correct, and you don’t figure this out when it’s already too late to do much about it. What I’ll say about cash flow during these times, I mean, this is not rocket science, right? You want as little money to leave the company and the money that leaves the company to leave it as slowly as possible. And you want as much money come into the company and you want it to be coming as fast as possible, right? I mean, this sounds dumb, but this is the basic principle in many ways. So, you need to ask yourself what are all available options for us to keep improving this. And so, on the one hand, when it comes to the money that’s leaving your business, it’s now the time, if you haven’t done this already, to think about, to make a list of all the expenses you have, obviously to ask yourself what is really absolutely crucial and critical. Maybe there’s a bunch of things that we’re not getting real value out of that we should cancel or stop paying for. But then, out of the things that you are getting value from, now’s the time to renegotiate. Now’s the time to see, can we get a discount? Can we get a lower price? Can we get more favorable payment terms where we don’t pay month over month. Maybe, at least the next three months, we can kind of swap out. A lot of gym memberships did this, where when you have a gym membership, but you can’t go to the gym. So what did they do? They’re like, “We’ll keep charging you, but your membership is going to be extended. So, it doesn’t end on that date. For every month you pay, we extend it,” right? So you want to negotiate with any vendor that you have on price and on payment terms. And then, the other thing I’ll say is, especially if the times are tough, you’re going to want to keep renegotiating this. This is not a one and done. This is not a, “We approach this vendor, they said no and so we tried our best.” Try again in two weeks. Try again two weeks later. Make more cases. Have your mom email them and call them. Have an investor tweet about it. Just keep going at it. You’d be surprised how many times I’ve gotten a yes after I got a hundred no’s before from the same person, or how something that started as the best thing we could offer is a 5% discount ended at a 25% discount, right? So, you just have to be very persistent here and realize that just because you negotiated something this month, you’re not done. You should keep working at these within reason, obviously, over the next year for sure. And then, on the flip side of the revenue side, it’s a very simple thing. Try to encourage as many of your customers as possible to prepay you or pay you a larger chunk upfront as possible by giving them, potentially, a really good deal, right? So, I think I mentioned this in a prior episode where… We did this end of February, we decided longterm contracts that are paid monthly are worthless in an instable world, where customers are going to go out of business. Cash is king in a crisis. So, what we’re going to do is we’re going to offer our customers no contracts anymore for a better price if they pay monthly only for prepays, but we’re going to make these prepaid deals really, really sweet. And we’re going to tell them, “Hey, right now times are really tough and insecure and instable, but you’re going to get an amazing deal if you prepay.” If you wait until the world is sane again, you’ll pay what everybody else is paying. And surprisingly, shockingly, an insane amount of customers chose that. They were excited about that. February we had our biggest prepay month in history. March beat February, was the new record of prepays in company history. May, for four months in a row, we had record prepays, right? And we made a significant difference in our capital position as a business. And it was not rocket science. It didn’t need hard convincing or any kind of crazy tactic. We just offered people a very simple, straightforward deal. And for a long time, they decided they wanted to have it. So, think about what you can do to get more cash upfront and make these offers. Way too many founders are too scared to even propose something like this, because they are afraid of the reaction of people. And when it comes to the cost that you have, just try to figure out what is the way that we can cut down costs and what is a way that we can slow down the payment of these obligations. Anything within reason. But if you stay on these two lanes of thought and you just keep going at it every month, every other month, you’re going to be in much better shape than a lot of companies that either do nothing about this and then have to, all of a sudden, fire 50% of their employees, or that do a little bit timid action in the early days. And then, they’re like, “Well, we tried our best and this is what we were able to do.” No, it’s not good enough. Just keep trying. This never stops. Cashflow is not a flow, it’s a river; it never ends. You keep having to peddle it and work it. So, if you have that attitude and approach, you’re going to be in a much better position than many other companies in your space that might be too slow, too timid and not aggressive enough around cashflow.


Hiten Shah: Yeah. I couldn’t agree more. I think all those tips are super valid. I’ll give one on my end. There’s a lot of stuff out there around negotiation and all that kind of stuff. I think when it comes to cashflow, there’s a lot of typical things that you do, like getting payments up front, things like that. But the thing that I see, kind of near and dear to my heart too at this point, is in many organizations, there are probably hundreds, if not thousands of dollars, especially even in smaller ones that could be saved every month, just that looking at what are the different tools that the company is using, and just determining whether they’re really important or not, and cutting them. I know it sounds weird because it sounds obvious, but we just don’t do it regularly. My brother-in-law and co-founder on a few things, Neil, he’s looking at that sheet, not sheet, but those statements every week and trying to prune constantly in the businesses that he’s running and responsible for. And that habit, I think, is very healthy and can save you hundreds, if not thousands of dollars a month, pretty quickly. Another area where this is actually a bigger deal is it happens to be on in software companies on the Amazon Web Services side. The number of times that I’ve found companies, as well as my own, have essentially instances and servers and things like that, that are just extra sitting there, running and being charged for them, it’s pretty ridiculous.


Steli Efti: Yep.


Hiten Shah: I bet if anyone on the call running a software company, if you haven’t talked to your head of engineering and asked them about AWS and found a way to spend some time doing an audit, we’ve had times when we’ve hired a DevOps person at the company and a person who’s not inexpensive, they were able to pay back their salary within a month off of the infrastructure savings, just because they put their time and energy for a whole month and just digging into all that and figuring it out. And that ends up being like four or five figures for a lot of companies, if they can save on those hosting costs, because that’s just what it’s called now, but it’s really just Amazon Web Services or Google Cloud or Microsoft Azure. It’s just so easy to spin these up and almost any engineer can. So those are hidden costs that I think a lot of us that might be not nontechnical just assume, “Hey, that’s the cost, that’s the cost.” That being said, if an engineer is asked to dig into it, I’m sure they can figure out a lot more about it than just, “Oh yeah, that’s the cost, that’s a cost.” And can then help make trade offs. Even trade offs on the customer experience sometimes. We’re like, “Hey, if we reduce the servers here, there might be a little bit of slowness over here on the interface. Is that okay?” Right? Even just having the discussion can be really, really valuable. This is the discussion I would have first, if I were running a software company, looking to manage costs, which is everybody basically now.


Steli Efti: Love it. All right. I think that this is it from us for this episode on improving cashflow. If you listen to us and something we said scared you or excited you, or you want more advice, more feedback on how to put your startup, your company in a better cashflow position, reach out to us., We always love to hear from you. It’d be even more helpful if we can. Until next time, cash is king


Hiten Shah: Cash is king.


Steli Efti: There you go. That’s it from us. We’ll be here soon. Bye-bye.


Hiten Shah: Bye.