Tuesday, December 23, 2014

Startup Life: When to tell your team... we're almost out of cash!

Is your startup nearing $0 cash? When do you tell the team?

You are not alone!

Doing a startup is hard.  Whether you are bootstrapping, VC funded, or even backed as an internal skunkworks, you may find that your bank account is getting awfully close to zero.  You are not alone.  Nearly ever startup I've ever been a part of has hit this point.  It is scary.  It is stressful.  And what do you do about the team?  Some of them, you know, depend on that regular startup paycheck!

Here's what you need to know!

  1. Fiduciary Duty: First, you have a duty to your shareholders which is actually very simple: if you are nearing "insufficient cash" to pay your debts (defined as non-investment capital), then you must inform your shareholders (and/or board of directors) very soon.  They may be able to help.  My advice: have a plan in place that shows how much you need, or how you will come through anyways.  Even better: don't get here... raise more funds before this point.
  2. Duty to Employees:  If there is ANY doubt that you might miss a paycheck... you need to tell people as soon as you have that doubt.  Personally, I like the 1-month left rule... if you will be able to make 1 more months of paychecks, and then no more... it's time to share the news... REMEMBER TO ALSO share your plan.  Employees will want to know how they can help!  Let them.  Let them help with the fundraising... make slides... etc.  Let them help with sales (the whole company can do sales!).
  3. If it get's dire... like down to 2 weeks... one thing you might do is ask if any employees can take partial deferred salary.  This is salary, you are asking them to risk, on the hope that you'll make it through.  100% is not a great idea (unless you are the founder), but I've gotten nearly 100% participation in a 50% program in the past... and we made it through!
I hope this helps you know what to do (this time or next time).  Remember, it's normal, it's stressful, but you DO need to tell your people.  The best employees will only respect you more for your transparency.  The worst, who quit on you, you don't need anyways.

Good luck!