3 Outcomes of Lean Startup Process
- No — entrepreneurship isn’t for me, or this business idea won’t work.
- Not now or not this way — need for other life conflicts to resolve, need more cash for working capital, or need to pivot to what willing and able customers want. So, not now, not yet, but maybe in the future.
- Launch — all systems go.
Working Capital and Cash Flow
How Much Cash or Working Capital?
There are three big sources of working capital demand for a startup:
- Ramp-up — the customers don’t all show-up day-one. This is why burn rate and time to break-even are so important.
- AP ≠ AR — Accounts Payable (AP) is the money you pay out. Accounts Receivable (AR) is the money you receive. Any time gap between the two requires cash also known as working capital to cover the expenses or liabilities before the matching income arrives.
- Cyclical Income Variations — Most businesses have a pattern of income through the year, with good days, weeks, or months. And slow days, weeks, or months. Payable expenses occur more steadily through the year (or another period). You need enough cash to get from your best month (period) back to your best month. If you can’t pay your bills during a slow month, it doesn’t matter how good December was going to be.