Cash management in a startup: What business angels should keep a close eye on
In a startup, cash flow is often compared to oxygen: invisible but vital. While a start-up can go several months without turnover, it cannot survive without cash. Cash management conditions the ability to invest, recruit, pivot, or simply hold out until the next round of fundraising.
For business angels, the ability to read and understand a startup's cash flow situation is essential, both to support founders in their decision-making and to secure their own investment. This vigilance must not be translated into intrusive surveillance, but rather into the posture of an attentive strategic partner. It requires active listening, a good understanding of financial metrics, and regular dialogue between the startup and its referent.
Forecasts, deviations and ability to manage
The first indicator to watch is the burn rate, i.e. the speed at which the startup consumes its cash. This indicator, put into perspective with the level of cash available, makes it possible to determine the runway, in other words the financial life of the startup without any new inflows. Monitoring this data month after month is essential, because it conditions the serenity (or pressure) in which the team can work.
A high burn rate is not necessarily a negative signal: it can reflect a strategy of voluntary acceleration in growth, product development or commercial conquest. But it must always be understood, justified, and controlled. As a business angel, it is important to ask the right questions: what is the fixed and incompressible part of the expenses? What is the target break-even point? In the event of an unforeseen event, how many months can the startup last without weakening its mission? It is these scenarios that make it possible to measure the robustness of the management.
Financial forecasts, and especially their comparison with reality, are also a fundamental point of vigilance. It is normal for a startup not to stick exactly to its provisional budget, especially in the first years when the assumptions are still moving. On the other hand, it is essential that the discrepancies are analyzed, explained, and taken into account in the following versions. This demonstrates not only the team's ability to iterate, but also its level of lucidity and transparency. A startup that regularly monitors its budget variances and adjusts its course shows real management maturity – a quality that is too often neglected in the euphoria of growth.
Budgetary discipline in everyday life
In this context, the quality of the reporting sent to shareholders plays a decisive role. Good reporting is not just an Excel table detailing accounting lines: it is a management tool that highlights priorities, areas of tension, levers activated and results obtained. It must reflect the key dynamics of the company, the operational and financial results, the evolution of the sales pipeline, any tensions on cash, and allow for an informed dialogue between the founders and their board.
Cash management, beyond the tables, is also based on daily budgetary discipline. At the start-up, every euro counts. Spending must be aligned with strategic priorities, and budgetary decisions must reflect a real management logic. Premature recruitment, a poorly targeted marketing campaign, or costly outsourcing can take a heavy toll on the cost structure.
As a BA, it is essential to make founders aware of this prioritization logic: not every project needs a CMO from the first month, nor an external research firm. Sometimes, it's a question of corporate culture: setting up a monthly budget review routine, making managers responsible for their expense lines, and not hesitating to temporarily "freeze" certain initiatives in the event of cash tensions.
Anticipating lifting, avoiding emergencies
Cash flow is directly linked to the financing strategy. Too often, startups wait until they are three or four months away from their runway to start a new round of fundraising. This reflex, understandable in the heat of the moment, can be dangerous. Effective fundraising is prepared twelve months in advance, or even more, depending on the maturity of the market, the complexity of the project, or the seasonality of the investors.
Business angels, especially when they sit on the strategic committee, have a key role to play in this anticipation. They can support founders in building the financing plan, challenge revenue or cost assumptions, and above all help define the right timing. A poorly timed fundraising can force emergency negotiations, excessively dilute the founders, or bring in investors who are not aligned with the vision of the project. By mobilising their own network, BAs can also facilitate access to trusted funds or family offices, and leverage the first commitments to structure the round.
Benevolent vigilance
Monitoring a startup's cash flow does not mean controlling every expense, nor turning the board into an audit firm. This means understanding financial dynamics, questioning with kindness, and building a framework of transparency conducive to decision-making. At Paris Business Angels, we firmly believe that the relationship between a startup and its investors is based on trust, nourished by a regular dialogue around figures, objectives and operational issues.
Rigorous cash management is not only a guarantee of survival: it is a fundamental lever for building healthy and sustainable growth. It is also a strong indicator of a startup's ability to one day become a scale-up, and then a solid company. For business angels, this posture requires education, listening, but also a certain requirement: because behind the spreadsheets is the future of an ambitious entrepreneurial project.
