Question

One of the most pressing challenges for entrepreneurs is to maintain adequate levels of cash. Which of the following is the best way to ensure that a lack of cash does not bankrupt your startup?

A. Raise initial capital.
B. Give your customers, both businesses and individuals, generous credit terms.
C. Carefully monitor your burn rate.
D. Avoid accepting too much early capital in exchange for diluting your equity.
E. Answers A and B

Answer 1

The best way to prevent a startup from going bankrupt due to cash shortage is to carefully monitor the burn rate (option C) and to raise initial capital (option A) from various potential sources such as personal savings, angel investors, or venture capital firms.

Step-by-step explanation:

One of the most pressing challenges for entrepreneurs is to maintain adequate levels of cash to prevent their startup from going bankrupt. The best way to ensure that a lack of cash doesn't bankrupt a startup is to carefully monitor your burn rate (C). Additionally, startups need to raise initial capital (A) to fund their ventures.



This capital can come from a variety of sources, including the business owner's personal savings, credit cards, angel investors, and venture capital firms. Giving customers generous credit terms (B) can backfire by delaying cash inflows, and avoiding too much early capital can prevent unwanted dilution but does not directly address cash flow issues (D). Therefore, the combined approach of raising initial capital and monitoring the burn rate is most effective.