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7 Myths about Startup Cash Management

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Thanks to Ali from Vertical CPA for collaborating on this piece.

Cash is king.

But there are 7 myths about startup cash management that hurt founders’ wallets.

Here’s the truth and why this 3 minute read is worth millions for your startup.

But first, what is “treasury management”?

= how businesses handle their cash

This includes payroll. Or what to do with your long-term spare cash.

There are big misconceptions about that $5mm of spare cash in your checking account.

Let's fix that…

Myth 1: “Treasury management doesn’t matter.”

For startups, cash management was meaningless when VC dollars were free and interest rates were low.

That’s not true anymore.

Founders and investors are focused on runway and burn.

And proper cash management can turn your idle $10 million into $470,000 to…

  • Extend runway
  • Hire more engineers
  • Turn a finance team into a profit center

But…

Myth 2: “Cash management is dangerous!”

Yes, you aren’t running a hedge fund with investor cash.

Startup cash management starts with 3 S’s:

  • Simplicity
  • Safety
  • Security

You’re “stuck” with ~4.7%* U.S. Treasury Bills and money market accounts.

Everything else is too risky.

Myth 3: “My money is locked up!”

Savvy cash management starts with a checking account for day-to-day payments.

And spare cash gets stashed in places to earn 3-5%.

Lack of liquidity is a myth.

If you can’t pull out your cash within 1 day, you’re in the wrong place.

Myth 4: “My investors will be upset”

Do you know what investors love?

Frugality + fiscal responsibility

A founder that spends 15 minutes on their spare cash is applauded.

Investors say:

“Wow, Jimmy is a smart steward of capital.”

Ha ok maybe it’s not that cool

Myth 5: “Rates are rising. I should wait!”

An old adage with stocks:

“Timing the market is for fools.”

No one knows what will happen next.

• Not Goldman

• Not JP Morgan

• Not your minivan-driving neighbor

Do you want to play Interest Rate Roulette?

Or go back to building.

Myth 6: “Inflation is no big deal!”

For founders, your daily fires are endless.

So why worry about inflation?

Because it’s a crazy cost for your business.

With inflation at 10%, $10mm you raised in 2021 is only worth $9mm today.

And getting worse:

Myth 7: “Investing is so complicated!”

Wall Street tries to turn investing into rocket science.

It’s not for startups.

Key:

Conservative while generating a reasonable return.

Your 3 core tenets:

  • Protect principal
  • Generate reasonable return
  • Keep liquidity

To summarize, these myths hold founders back from crushing cash management:

  1. “Treasury management doesn’t matter”
  2. “It’s dangerous”
  3. “My money is locked up”
  4. “My investors will be upset”
  5. “Rates are rising”
  6. “Inflation is no big deal”
  7. “Investing is so complicated”

Avoid them and you’re golden.

Terms & Disclosures:

~4.7% is sourced from treasury.gov December 2022 52 week coupon equivalent rate yield. $470,000 calculated assuming treasury.gov's December 2022 52 week coupon equivalent yield based upon a $10 million deposit and held to maturity. Rates are indicative, and trade execution can affect the actual yield to maturity of the T-Bills. Projected and/or hypothetical performance is intended to show only an expected range of possible investment outcomes based on historical average returns and standard deviation of each investment type contained in the investment mix recommended by Helium, but does not take into consideration the effect of taxes, changing risk profiles, or future investment decisions. Projected and/or hypothetical performance does not represent actual client accounts or actual trades and may not reflect the effect of material economic and market factors. Meow is not an investment adviser however we’ve partnered with Helium Advisors LLC (“Helium”), an SEC-registered investment adviser, to bring you certain investing features. All investment advisory services are provided by Helium. We are not affiliated with Helium however we receive compensation as a percentage of assets managed by Helium for promoting Helium’s investment advisory services. Our partnership with Helium gives us an incentive to refer you to Helium instead of another investment adviser that is not a partner of ours. This conflict of interest affects our ability to provide you with unbiased, objective information about the services of Helium. This could mean that the services of another investment adviser with whom we are not partnered may be more appropriate for you than those of Helium. Investing involves risk, including the possible loss of principal, and there is no assurance that the investment will provide positive performance over any period of time. Helium accounts are not bank guaranteed or FDIC insured.

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