Watching Cash Overhead and Capex

Originally posted 27/09/09

As a recent founder of a start-up business, I have come face-to-face with the critical importance of managing cash overhead.  A moderate amount of income can go a long way if overheads are watched carefully, particularly with the tax advantages that are available to small businesses.

Of course, investment is needed to grow a business, which may be in the form of overhead or capex.  But there are sometimes non-obvious decisions to be made about how and when to deploy such investment, as a recent conversation with the founder of a leading green technology company illustrated for me.  His company had made the decision to defer capital investment in a major demonstration project for their first-generation technology, in order to focus available funds on development of second-generation technology.  While this decision delays time to market, it allows the company (1) to better weather the current downturn,  (2) to enter the inevitable economic rebound with significantly better technology and (3) to make its demonstration project more likely to be a technological success.  It is not easy (and sometimes unwise) for an eager entrepreneur to delay market entry, but this one clearly made the right decision.