Many years ago (during my consulting days) I was working on a project for a small German airline that was trying to compete with Lufthansa on a few routes.  We quickly discovered that the company was hemorrhaging cash despite having relatively full flights. A further bit of digging took us to their Frankfurt location that was in charge of collecting revenues from other airlines and global reservation systems.  There we were assured that everything was just fine, but just as we were leaving we noticed a room that seemed to be virtually overflowing with paper tickets.  While I have forgotten the exact details, the story went roughly like this: the electronic system that was supposed to be doing the interline and GDS settlement never got up and running and so they were processing tickets manually.  But they had literally fallen a couple of months behind and so while revenues looked great, cash flow was abysmal.

Don’t be like that airline (which had to get an emergency line of credit just to keep operating).  Make sure you have the systems in place to invoice your customers automatically, reliably and quickly.  Otherwise you will fall behind badly in cash collection as you grow and your working capital needs will kill you.  Many companies are so focused on their core service that they ignore the back office and/or assume billing is easy.  It hardly ever is other than for the simplest credit card based monthly or one of fixed fee setups.  For anything that is usage based things quickly get complicated.  You need to be able to get the relevant data from your operational systems in a fully automated fashion (no re-entering ticket stubs!).  You must be able to cope with price changes, different billing terms, credits and so on.

As with anything else in startups, don’t over-invest until you know you have a service that people want and are willing to pay for.  But as soon as you know that get on top of the backoffice before your working capital needs get out of hand!

Many years ago (during my consulting days) I was working on a project for a small German airline that was trying to compete with Lufthansa on a few routes.  We quickly discovered that the company was hemorrhaging cash despite having relatively full flights. A further bit of digging took us to their Frankfurt location that was in charge of collecting revenues from other airlines and global reservation systems.  There we were assured that everything was just fine, but just as we were leaving we noticed a room that seemed to be virtually overflowing with paper tickets.  While I have forgotten the exact details, the story went roughly like this: the electronic system that was supposed to be doing the interline and GDS settlement never got up and running and so they were processing tickets manually.  But they had literally fallen a couple of months behind and so while revenues looked great, cash flow was abysmal.

Don’t be like that airline (which had to get an emergency line of credit just to keep operating).  Make sure you have the systems in place to invoice your customers automatically, reliably and quickly.  Otherwise you will fall behind badly in cash collection as you grow and your working capital needs will kill you.  Many companies are so focused on their core service that they ignore the back office and/or assume billing is easy.  It hardly ever is other than for the simplest credit card based monthly or one of fixed fee setups.  For anything that is usage based things quickly get complicated.  You need to be able to get the relevant data from your operational systems in a fully automated fashion (no re-entering ticket stubs!).  You must be able to cope with price changes, different billing terms, credits and so on.

As with anything else in startups, don’t over-invest until you know you have a service that people want and are willing to pay for.  But as soon as you know that get on top of the backoffice before your working capital needs get out of hand!