Cash is like oxygen for startups—without it, even great companies go out of business.
Many early-stage and aspiring founders assume cash management is a problem for later, once there’s seven figures in the bank. But the habits that protect a $2M Seed round are the same ones you build with your first $5,000 friends and family raise.
In this article, we’ll break down how to manage your runway from day one of your company-building journey, and explain how cash management evolves as you progress from ideation to incorporation to your first raise.
Stage One: The Ideation Phase, Where Runway is Personal
At the beginning of your founder journey, your company’s runway may just be your personal savings. Implementing efficient cash management and spending strategically from day one will help you extend runway and set you up for a successful fundraising cycle.
Your first priority in the ideation phase should be to validate that the problem you are trying to solve exists and that there’s a market for your company. Talking to potential customers and running surveys doesn’t need to cost a lot, but it’s critical to invest here before brand.
As Jonathan Greechan, Co-Founder and CEO of Founder Institute, puts it, “frivolous spending on a logo, fancy website, or trademarks before market validation is like planning a party before realizing no one’s coming. In the beginning phase of your founder journey, the only goal is to learn the problem you’re trying to solve better than anybody, and validate that there are enough people that are willing to pay to solve the problem.”
Ensure you’re tracking these expenses throughout the ideation phase, even if you haven’t incorporated yet, as pre-formation costs may matter later for bookkeeping and taxes.
Cash management isn’t something to hand off, especially in the initial days of your founder journey. You are the steward of your company’s cash, and must treat your own money like investor money before you have investors.
Stage Two: Incorporation and Opening a Business Account
Once you incorporate, it’s time to separate your money from the company’s. Open a business account the day you incorporate, fund it with the capital you put into the company, and run every business expense through it.
This is important to do because commingling personal and business funds enables a court to potentially reach your personal assets, makes business deductions hard to prove at tax time, and leaves messy records that slow down investor diligence.
Understanding the right type of incorporation for your business is critical. If you’re planning on raising outside investment, you need to incorporate as a Delaware C-Corp. This will enable you to issue multiple classes of stock, and specifically preferred stock, which is what VCs expect to acquire by investing in your company. LLC incorporation may be suitable for a consultancy or a one-person business, but it isn’t designed to support Venture Capital equity structures. Avoid incorporating your startup as an LLC—VCs won’t go near it.
On the banking side, make sure your business account is FDIC-insured, even if only starting with a small amount of money. Back-office platform Every offers free incorporation that bundles these steps, so you get banking, payroll, and books set up from day one.
Stage Three: Managing Your First Dollars
Once outside money arrives, whether from friends and family or Pre-Seed investors, you become the steward of someone else’s capital.
Cash management still shouldn’t be handed off here. As CEO, you’re responsible for:
Understanding your true cash position
Making strategic decisions about where to keep your cash
Creating a comprehensive plan for managing your runway
“The CEO’s core job is to not run out of money,” Jonathan explains. “For every financial decision that’s being made, and any potential liabilities or surprises, the buck stops with the CEO.”
It’s easy, amidst the enthusiasm of a recently-funded startup, to feel optimistic about growth targets and revenue. But beware of inaccurate forecasting—“I’ve watched many startups with great businesses fail because they mismanaged their cash flow,” says Jonathan.
By starting with simple, accurate bookkeeping now, you make financials cleaner and more reliable for your next raise. Every’s automated bookkeeping, banking, and cash-back cards are helpful here as they provide real-time visibility into burn and runway, helping you keep financials clean without hours of spreadsheet work*.
Stage Four: Treasury Management for Long-Term Growth
Once you’ve reached Seed or Series A funding, you can begin to treat runway management not just as cash preservation but as fuel for growth. In addition to funding strategic hires and tooling, capital can be used to earn yield that extends your runway by weeks or months.
But it’s important to remember that investors gave you capital to grow your company, not to make risky investments with it. The absolute number one goal of treasury management is protecting your cash. A few extra basis points of yield are never worth increasing your risk profile—losing principal is catastrophic, while missing out on some yield is merely suboptimal.
Limit yourself to FDIC-insured accounts, money market funds made up primarily of US Treasuries, and US Treasury bills. Avoid corporate bonds, commercial paper, or other higher-yielding instruments that introduce unnecessary risk.
It’s also best practice to split operating cash from strategic cash. Operating cash should cover 12 months of burn, held in an FDIC-insured deposit account with immediate access. The rest of your cash can be held in strategic treasury-backed money market funds and short-duration T-bills. Document this plan in an investment policy and share it with your board for approval.
Every’s treasury management solution offers a comprehensive platform for protecting your cash while putting idle funds to work. Founders can invest strategic cash in US Treasuries and money market funds that earn 4.3% yield**. Meanwhile real-time dashboards provide complete visibility across all your accounts, and automated cash management makes it possible to move cash from your treasury to your checking account automatically to maintain 12 months of burn.
With a dedicated treasury management platform like Every, you can remain focused on growing your business while knowing your cash is properly protected and managed.
Remember: Cash is Oxygen for your Startup
Your capital management practices may evolve as your company grows, but the fundamentals remain the same. Cash is oxygen for your startup, and your primary duty is to protect it.
Establish the right financial habits now, long before your first check from an investor. Because with a reliable financial foundation, you’ll be better equipped for strategic decision making and investor conversations as you scale.
Founder Institute is excited to be partnering with Every to provide an exclusive offer to Founder Institute members. Learn more here.
*Every is not a bank. Banking services provided by Thread Bank, Member FDIC. Deposits qualify for up to $3,000,000 in FDIC insurance coverage when placed at program banks in the Thread Bank deposit sweep program. Deposits at each program bank become eligible for FDIC insurance up to $250,000, inclusive of any other deposits you may already hold at the bank in the same ownership capacity. Pass-through insurance coverage is subject to conditions. Terms: thread.bank/sweep-disclosure Program banks: thread.bank/program-banks
**Yields are based on the 4-week U.S. Treasury bill rate when held to maturity. Rates fluctuate and past performance is not a guarantee of future results. Investing in U.S. Treasuries involves risks, including loss of value if sold before maturity.
