MARKHAM, Ont. – Finding investors to fund a business start-up is an accomplishment. So is managing the money. Without clear direction and spending controls, companies in the early stages of growth can become stretched thin on working capital before they can build momentum.

"When a company starts, there is a tendency to focus on the product, and not the running of the business," says Blair Davidson, senior vice-president of KPMG Inc., a firm specializing in business revitalization. "In simple terms, business can be viewed as a 'triangle' of operations: making, selling, and scorekeeping. If you devote yourself only to production and neglect the other sides, the imbalance will show up in the bottom line, and shake the confidence of potential investors in the future."

Examining remedial cash flow management strategies for technology firms was the focus of Davidson's keynote speech "Surviving early stage growth: What to do BEFORE the money runs out," a joint presentation of the York Technology Association (YTA) and the Canadian Technology Network (CTN). Drawing an audience of high tech entrepreneurs, consultants, and corporate managers.

Davidson, KPMG national director for Business Revitalization Services, says identifying the early symptoms and underlying causes of funding shortages is an essential first step toward an action plan to restructure the business operation, and that identification also helps prevent cash flow crises that can lead to insolvency. "Turning a company around can be done, but it's not from any cookie-cutter approach," he says. "It comes from identifying the signals, and then acting on them to improve the operation."

Warning Signs

One early warning signal for technology firms is whether a product or software has been completed in its expected time frame. Without realistic predictive management of the project, pushing back the product schedule for completion can impact other timetables of the operation. If an innovative technology is consuming too much cash and time, you may need to shelve the project and focus on other products under development that can more readily come to market.

Looking at sales generation, the ability to land the first major sale or contract provides a strong restructuring indicator. A shrinking sales pipeline may result from poor lead management. Davidson says the company sales force must use an effective database system to collect sales leads, and then they must track, qualify, and target their prospects. Ongoing sales with slow-to-pay clients will only contribute to aging receivables and a deteriorating financial position.

A lack of salespeople, and other operating staff such as accountants, may be symptomatic of a managerial imbalance. "If you have too many techies [technological specialists] and not enough accountants, the triangle will be strong on the making side, but will falter in scorekeeping, " he says.

Another visible sign of operating ills is employee retention, particularly the ability to keep key employees in the early stages. Those leaving due to money issues or a job offer from a direct competitor may do so because they foresee funding problems and other issues arising in the company.

Steps to Success