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CMA Final · Entrepreneurship and Startup · Risk Management Strategies

A SaaS startup in Bengaluru keeps a reserve of cash equal to six months of fixed operating expenses, even though investors suggested deploying it fully into marketing. The founders' main purpose in holding this reserve is to:

The reserve is held to withstand a delayed funding round or a revenue shortfall. A buffer of several months of fixed expenses extends the startup's runway, protecting it against liquidity and financing risk, rather than serving tax, employee equity, or risk assessment purposes.

  1. AReduce income tax on profits
  2. BWithstand a delay in the next funding round or a revenue shortfallCorrect
  3. CIncrease the equity share of early employees
  4. DAvoid the need for any risk assessment

Explanation

A cash runway buffer protects against financing risk and revenue volatility by letting the business continue operating if funding is delayed. It does not reduce tax, change ESOP holdings, or remove the need for risk assessment.

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