Post on 15-Apr-2017
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Managing and Forecasting Cash FlowThe most important financial tool CEOs should use and understand.
What’s so great about a cash-flow forecast?
Cash is more important than your rev and monthly financials
Your BOD will spend WAY more time on your cash-flow forecast than financials
It’s a tool that helps you make faster and better decisions
The answer is surprisingly easy when you don’t have the money
Use for short-term and long-term planning
Most fundraising rounds are predicated on cash burn
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Start with a short-term cash forecast13-week rolling forecast
Used for operations
KEEP IT SIMPLE
Start with where you are currently
Precise but not to the penny
Use logical categories
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Cash flow is about money in and money out
Fundraising is predicated on long-term cash forecasts
12-18-month rolling forecast
Used for fundraising and strategic planning
Usually based on hiring plans and revenue projections
Start with where you are currently
Less detailed and precise
Use logical categories
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Cash is hard to predict at every stage of growth
Early-stage companies: Why you’re forecasting cash; what investors need to know; numbers you need to have ready, and do you need a CFO now?
Early-revenue companies: MVP in market, non-predictable revenue, expenses easy to accumulate
Growth stage companies: Predictable revenue, but lots of other challenges to manage
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Cash flow financing helps, especially when bootstrapping
Receivables financing: Smooth cash flow from lumpy payers
Purchase order financing: Help with those big orders
Inventory financing: Leverage your assets
Revenue-based financing: Lump sum based on trailing revenue
Merchant cash financing: Credit card payment advances
Asset-backed lines of credit: Working capital based on company assets
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Different industries have unique cash flow challenges
Manufacturing/distribution: Managing inventory and cash flows tough balance; perishable inventory harder to manage
SaaS: Great MRR, but money comes in over time; how does that impact how you manage cash?
Subcontractors: How to predict cash in a longer supply chain
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Case Study: SaaS company cash flowSteadily growing SaaS company with predictable revenue of $300K/month.
Trying to increase sales by offsetting a typical large up-front fee that makes it harder to onboard customers quickly.
Wanted to test a three-month offset of the fee. Took out a line of credit based on contractual monthly revenue to borrow against the next three months to continue to keep up expenses while testing the offset of the up front fee.
Sales are up.
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Terms matterPricing strategy
When will you require customers to pay you?
Will you take up-front fees?
Will you make it easy for them to leave?
What is your return policy?
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Getting Creative with Cash Flow• A/P management
• Personal / business card mangement
• Ask your investors / be transparent
• Talk to your staff openly and honestly
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Good CEOs (not just CFOs) always know• The month, if not the day, you will run out of cash
• Current monthly burn rate
• Max cash burn before you become profitable
• Max cash burn for the next 18 months based on growth
• Current payroll
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Tips for SuccessKeep it simple!
Avoid analysis paralysis
Regular maintenance is critical (helps when it’s linked to hiring)
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