Thursday, September 18, 2008

Cash Management at a Startup pt. 2

On June 3, 2008, I discussed Local Motors newly-instituted cash management policy wherein we deliberately moved funds out of our commercial bank account into a highly diversified fund of fixed income securities.

This week, the hypothetical risk that we were addressing has come to pass. There is fear and actual evidence of bank failure, corporate failure, and many other kinds of financial risk. Even Treasury securities have been seen selling at a Premium in today's dollars.

In short, what was a theoretical exercise 3 months ago, has today become the bedrock of peace of mind for running a start-up with regular cash needs in the midst of financial market turmoil.

Nothing is immune from unexpected events, but capital diversification and a risk management strategy are critical elements for any CEO to manage in a new startup. This is one test that we hope our open blog strategy might have helped with by encouraging others to avoid themselves over-allocation in one asset.

If there are helpful hints you would like to share with us, please let us know in response to this blog as we are always open and thankful for good advice. We never know when it may make a huge difference.


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