Developing a Financial Runway

ProfitSchool

Topics Covered In This Episode

• Defining Financial Runway: The podcast kicks off by explaining what financial runway means for businesses, referring to it as the duration a business can function with its existing funds and expenses. Mercer and Jeff Sauer both measure it in terms of time, like months or weeks, to assess the business's resilience in case of zero revenue.
• Evolution of Financial Runway: Jeff delves into how the concept of financial runway has evolved. The aim is to have enough funds to invest in the business without being overly cautious, emphasizing the importance of calculated risks in business growth.
• Financial Planning and Emergency Funds: The discussion shifts to financial planning, with Jeff using a 3-6-12 month guideline for hiring as payroll expenses can be a significant factor. Mercer prioritizes having enough runway to navigate uncertainties, aiming for at least two weeks of payroll coverage.
• Mindset and Risk Management: The hosts emphasize maintaining a conservative financial mindset even when success seems certain. Jeff underscores the balance between caution and acknowledging the potential for unexpected events, such as black swan events.
• Challenges and Solutions: Mercer and Jeff discuss managing expenses during crises, such as a pandemic. Jeff highlights the need to shift the mindset from "it's going to zero" to "there's always a chance it could go to zero." Mercer agrees, especially emphasizing the difficulty of handling big expenses like payroll during uncertain times.
• Financial Discipline and Success: Both agree that financial discipline is a key to success, as it allows for controlled spending and revenue growth. Jeff draws parallels between business and sports, emphasizing the importance of learning from mistakes and adapting to unpredictable revenue growth.

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