Cash Management For Bootstrappers

The 2010 Silicon Valley economy continues to test bootstrapping entrepreneurs cash management skills. Here are tips for surviving a downturn.

Cash Management For Bootstrappers

I took a look at Silicon Valley bankruptcy case filing statistics for the last decade (in particular for the San Jose court)  prompted by two recent articles in the San Jose Business Journal:

May-1-2009 “Chapter 7 Bankruptcies up 35%”

“We’re really seeing it across the board,” Murray said, from venture-backed technology companies whose investors have cut capital to hotels, restaurants, residential real estate developers and even a golf course. “It cuts across the entire economy.” The ripple effect is noticeable. “We get calls from some of our clients’ vendors saying if they don’t get that payment, we’re going to be forced into the same situation that the client is in,” Murray said. “What can we say? It’s unfortunate for everybody.”

Jan-29-2010:  “Bankruptcy Lawyers Work Overtime To Keep Up”

“I’m seeing people every day who in a normal world would never ever meet with a bankruptcy attorney,” Michael Malter of Binder & Malter said. “I’m meeting people who tearfully tell me they’ve never missed a payment on anything in 30 or 40 years, and now they don’t know how they’re going to make ends meet. It’s a horrible plight, and I don’t see any end to it.”

Statistics are available here at http://www.canb.uscourts.gov/files/sjarchives.pdf

I derived the estimate for 2010 based on the ratio of the first four months of claims to the total claim count in 2007, 2008, and 2009. Each year the January through April claims averaged about 29% of the year’s total.

The 2009 bankruptcy count was 39% more than 2003, the worst year of the dotcom meltdown, and the first four months of 2010 are running 38% above the first four months of 2009. Very sobering.

We have invited Rick Kadet of The Brenner Group, Inc to tomorrow’s Bootstrapppers Breakfast in Sunnyvale to  to discuss Effective Cash Flow Financial Strategies for early stage entrepreneurs.  Rick will provide a five minute overview of key principles that will be followed by our regular round the table discussion.

Rick is Vice President and Senior CFO Management Consultant with The Brenner Group, Inc., where, since 1998, he has engaged with over 60 valley firms as part-time CFO or financial advisor. Rick works with client firms on executive staff level financial management, financial reporting to boards of directors, financial and business planning, raising venture and debt capital, facilities, business infrastructure, business systems and risk management.

Whether you are actively bootstrapping a startup, considering entrepreneurship, or keeping a weather eye on the possibility of involuntary entrepreneurship as your next career stage, you are welcome to RSVP and join us. Please bring your questions and lessons learned.

Bootstrappers Breakfast meetings bring together entrepreneurs who are serious about growing their business and gives them a chance to compare notes on operational, development, and business issues with peers.

Postscript:  I overlooked this article in the San Jose Business Journal “Bankruptcy Filings Surge 40% This Quarter over last year” which indicates the San Jose filings may understate the degree of distress in Silicon Valley because many are headquartered in Delaware and filing there instead of locally:

John Murray, managing partner of Cupertino-based Murray & Murray PC, said consumer bankruptcies are up “dramatically,” and while business filings have also jumped, he expected a bigger spike in corporate, Chapter 11 bankruptcy protection cases in the San Jose court.

He said many companies based in Silicon Valley are incorporated in Delaware, so they’re filing for bankruptcy there. According to Murray, those courts are more favorable to bankrupt companies, and attorneys’ fees are usually approved “without question,” so a firm’s lawyer is more likely to suggest filing there.

Nevertheless, the economy has “lambasted” corporate America, and Murray’s law firm still handles bankruptcy filings from a range of industries. Currently, his clients include a semiconductor equipment company, a golf course, a restaurant, an online catalog firm and a residential real estate developer.

“A lot of companies are just throwing in the towel,” he said.

Update Mon-Jun-14: Rick Kadet has published a guest blog on “Bootstrappers Benefit From a Simple Financial Model” that offers tips for the practical challenges bootstrappers face in managing cash and other resources.

SKMurphy Take

2010 looks to be a difficult economic environment.

• Establish and enforce clear credit policies for new and existing clients.
• Develop a simple cash flow model if you don’t have one already and analyze your cash position monthly.
• Understand that banks and other lenders are going to be hypervigilant for any signs of financial trouble and react more swiftly than they have historically. Don’t give them a reason to re-evaluate your creditworthiness downward.

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• Conserving Trust in a Downturn
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• Getting Your Startup Through the Downturn is a Marathon Not a Sprint
• Len Sklar: Be Clear About Payment Terms And Consequences
• Collecting Unpaid Bills
• Customer Development for a Consulting Practice in a Downturn
• Interview with Patricia Watkins on Managing Sales In a Downturn
• Walt Maclay: SKMurphy Has Contributed Significantly to Our Growth