ProfitSchool

Developing a Financial Runway

Jan 16, 2024

The podcast discusses the concept of financial runway and its evolution, emphasizing the importance of calculated risks in business growth. They also explore financial planning, mindset and risk management, and managing expenses during crises like a pandemic.

31:32

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Quick takeaways

Financial runway is the duration a business can function with existing funds, and it's crucial for stability and risk minimization.

Maintaining a balance between financial discipline and investments in growth is key for business sustainability and resilience.

Deep dives

Developing a Financial Runway

Developing a financial runway for a business is crucial. It involves calculating how much money is available to cover expenses and for how long. A longer runway is desired, ranging from months to years, to ensure stability and minimize risk. Decisions about hiring and investments need to be made with consideration of the runway length. Financial discipline is key, controlling expenses and prioritizing revenue generation. The goal is to have enough reserves and alternative financial resources to sustain the business during challenging times.

Introduction

2min

Understanding Financial Runway and Its Importance

12min

Developing a Financial Runway and Managing Risks

5min

The Importance of Financial Runway

10min

Developing a Financial Runway: Understanding the Importance of Momentum and Acceptance

3min

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.

Have a question or feedback about Business Unfiltered. Record an audio message https://s.bcast.fm/business-unfiltered-with-chris-mercer-and-jeff-sauer?episode=183614pn

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ProfitSchool

Developing a Financial Runway

Podcast summary created with Snipd AI

Quick takeaways

Deep dives

Developing a Financial Runway

Gauging the Length of the Financial Runway

Financial Discipline and Expense Control

Acceptance and Adaptation

Remember Everything You Learn from Podcasts