My startup is experiencing a cash crunch. What are my options to keep it afloat?

Q: My business is in temporary trouble. We have big new accounts that will deliver payments in a few months, but I’m worried about making payroll in the meantime. My cofounder and I can forego our salaries for a month or two, but that also has ramifications, including being able to pay my mortgage. What should I do? -CEO in trouble

Dear CEO,

It’s hard to answer your question without fully knowing the health of your business.

• What’s the balance sheet? Are you in the red?
• How convicted are you that these deals will happen?
• If these deals come through as expected, how healthy will the business be? How much time will you have to live?

If the deals are a sure thing—and they will put you in a better position for the future—you can look to get a bridge loan or a line of credit to float you in the meantime. It seems obvious, but if you are going to take money from someone that has implications, and you need to incorporate a plan to repay the loan.

Regarding your personal finances, I understand that you’re paying others before paying yourself. If you forego your salary, how will you pay personal bills like your mortgage? Do you have enough in savings to cover this?

Whether you’re a running a startup or managing your personal finances, you need to have good financial health. That requires proper planning, which takes rigor and discipline. Problems happen every day. The unexpected is always around the corner. As we all saw with Covid, black swan events occur. It’s hard to plan for everything that could happen so the best way to prepare is by having a reserve. I like to think of this as having a safety net.

The general rule is that startups should have 18-24 months runway. Public companies should have enough cash on hand to meet all obligations. They also have enough debt available so they can handle a short-term cash crunch. Financial experts advise having six months of expenses in your personal bank account. The idea is that you should have enough in your emergency fund to pay your bills even if you experience a job loss.

That’s easy to say and hard to do. In the U.S., nearly one in three people have some emergency savings, but not enough to cover three months of expenses. Nearly one in four U.S. adults say they have no emergency savings. That means that any unanticipated event—a surprise medical bill, car repairs, or a sick pet—could put them over the fault line.

I understand how important this business is to you. When you are the owner, a business can take on a life of its own, becoming as important as a close family member. That said, it’s risky to put your family and future at risk to protect a business that’s not doing well. If you don’t have things on the horizon that you can count on, then you should not put your personal finances in such jeopardy for this business. People who have financial health and discipline have less anxiety in their lives. It might be time to look at getting another job or seeing how to add another source of income. And when it comes to keeping the business going, remember, the role of a business is not just to pay your bills, it’s to grow, build traction and provide increasing value.

Moving ahead:

• Know your cash flow.
• Know what’s coming in (but don’t count your chickens before they hatch).
• Know what’s going out.?
• Spend less than you make.
• Save (squirrel away six months in savings to have an emergency reserve).

Every week I respond to a new question. Ask me your question in the comments section.