Needs-versus-Wants Cash Review
Protect runway by ranking costs, cutting luxuries, and negotiating early
- Difficulty
- Easy
- Time to result
- ~days to results
- Steps
- 5
- Confidence
- 95%
Begin with a 30-day and 90-day view of cash, then inspect the profit and loss statement rather than making broad cuts from memory. List the ten largest costs and classify each as essential to operating, serving customers, or producing viable demand, versus discretionary or merely convenient. Protect necessities, challenge luxuries, and look for a smaller way to fund useful sales and marketing where customers are still buying. For material supplier costs, ask directly for support or improved terms while explaining how a workable arrangement can preserve the relationship. The mechanism treats every saved dollar as added runway but avoids the simplistic conclusion that every expense should disappear. It also gives the founder a repeatable order of operations: see the cash horizon, rank the costs, preserve essentials, negotiate, and then cut.
Origin
Extracted from The Foundr Podcast
Core principles
- 01Cash creates time to survive or invest
- 02Necessary operating inputs differ from discretionary spending
- 03The largest costs deserve line-by-line attention
- 04Negotiation should preserve a workable supplier relationship
How to run it
- 1
Project the cash horizon
Estimate cash in the bank over the next 30 and 90 days using current information. Make the assumptions visible so they can be revised.
Pro tip Update the projection when revenue or collection timing materially changes.
Watch out Do not confuse a rough projection with guaranteed cash availability.
- 2
Rank the largest costs
Use the profit and loss statement to identify the ten largest expense lines. Focus first on costs that can materially change runway.
Pro tip Record the owner, contract terms, and next payment date for each major line.
Watch out Small visible expenses can distract from larger negotiable commitments.
- 3
Separate needs from wants
Classify what the business must retain to operate and serve customers versus what is discretionary. Protect essential stock, communication, capable people, and demand-generating activity where relevant.
Pro tip Ask whether a smaller version could preserve the useful outcome.
Watch out Across-the-board cuts can damage delivery or the path back to revenue.
- 4
Negotiate constructively
Ask major suppliers or partners whether support, changed timing, or better terms are possible. Frame the request around maintaining a viable continuing relationship.
Pro tip Consider what would make the arrangement workable for the supplier too.
Watch out Availability and legal implications vary, so obtain appropriate professional advice.
- 5
Cut and revisit
Remove or reduce lower-priority costs, then refresh the cash projection. Revisit the review as actual sales and expenses change.
Pro tip Tie deeper cuts to the revenue thresholds in the scenario plan.
Watch out Waiting too long can reduce the number of workable choices.
In the wild
Steve gives an illustrative million-dollar business with about $200,000 in annual operating expenses, or roughly $16,000 a month. He says he would try to hold around $50,000 in the bank as a minimum, while acknowledging that many businesses will not be at that point and larger companies may use debt or credit facilities instead.
→ The example translates a three-month operating-expense heuristic into a rough cash target, not a universal prescription.
Common mistakes
Cutting productive demand generation
The transcript distinguishes indiscriminate cuts from preserving sales and marketing that still reaches buying customers.
Ignoring the biggest expense lines
A founder should know and inspect the largest costs rather than relying on a general feeling that spending is under control.
Demanding one-sided concessions
Supplier discussions are more credible when the founder also considers what makes the arrangement workable for the other party.
Is it for you?
Best for
It is best for businesses that need a fast, evidence-based review of operating expenses and near-term cash.
Not ideal for
It is not ideal as a replacement for an accountant, cash-flow professional, or jurisdiction-specific advice.
From the transcript
“what are the luxuries what are the things you can live without”
“what are the top ten costs in the business line-by-line in the profit and loss statement”
“if you 42 30 don't ask you don't get”
From the episode
294: Responding to COVID-19: What Entrepreneurs Should Be Doing Right Now