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Vamshi Yadav
•
SucSEED Ventures • 9d
The Hidden Trap of Upfront Payments (And How Not to Blow It) A major contract / a larger sum of money / a prepayment for the entire year means that money in the bank may be set aside. Now what? Option: A. Spend It All Now B. Park 100% In Liquid Cash C. A Mixed Approach (10% Growth/90% Stay Safe) 'Really, that big one-off payment seems like free money,' until it disappears and you are left scrambling to hold on to certain commitments. Well here are the brutal truths about prepaid revenues: Why Spending It All Now = Time Bombs: •These are not profits rather it's a liability you owe to delivery of the service in the future. • The refund risks are real (customer churn, disputes, operational failure). • Burn it today-Starve tomorrow when delivery costs are incurred. More Intelligent Playbook (For Physical Businesses) • Option B (Safe): Park 100% of it in liquid AAA funds (4% to 6% yielding) and take it out every month, only as you earn it through service delivery. • Option C (Conservative): 10% for growth if necessary; 90% for liquid instruments to act as your bank for fulfillment. This is how you Avoid: 1. Running out of cash mid-fulfillment 2. Desperate discounting to plug the gap 3. Personal guarantees/loan center Golden Rules: "Customer prepays are loans against future work, not growth fuel." PS: If you've gone through it once, you're not alone. The key now is to fix it before that "safety net" turns into a noose. #CashFlowManagement #FounderLessons #FinancialDiscipline
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