Cash flow modeling is arguably the most essential tool for startups to forecast and plan their operations. A 13 week cash flow forecast, also known as a “rolling” cash flow forecast, provides insight to help founders make more well informed decisions about their financial trajectory in the immediate term. Right now, financial markets are highly volatile, especially in the venture world. With tougher access to financial markets, accurate and reliable cash flow modeling could be the difference between a startup well-positioned to take market share vs. one that won’t be here 2 years from now.
accurate and reliable cash flow modeling could be the difference between a startup well-positioned to take market share vs. one that won't be here 2 years from now
One of the primary benefits of using a 13 week cash flow model is that it allows startups to anticipate and plan for potential cash flow shortages. By projecting their cash flow on a weekly basis, companies can quickly identify potential shortfalls and take steps to address them before they become a problem. Typically this includes drawing additional equity or debt financing (if available), reducing expenses by lowering your expense items (Auxo or your accounting team can help you find where to look for these), or finding ways to increase revenue (perhaps through collection of outstanding accounts receivable or other immediately available revenue sources).
Another benefit of using a 13 week cash flow model is that it can help startups to better manage their working capital. By understanding their projected cash flow on a weekly basis, startups can make informed decisions about how to allocate their funds and ensure that they have enough cash on hand to meet their short-term obligations. This can include paying bills, salaries, and other expenses, as well as investing in growth opportunities.
Finally, an under-appreciated benefit that we frequently see is that cash flow modeling helps startups build credibility with investors and other stakeholders. By showing that they have a clear understanding of their financial situation and can plan for potential challenges, startups demonstrate their ability to manage investor capital and build sustainable businesses in the long term.
an under-appreciated benefit that we frequently see is that cash flow modeling helps startups build credibility with investors
Building an accurate cash flow forecast can be hard work, and there are a lot of variables to account for. If you have any questions about how to best set up your model, or how to think about predicting various revenue and expense items, please don’t hesitate to reach out.