Cash Flow Management

Cash Flow Forecasting

1. Build a Forecasting ProcessA disciplined forecasting cadence lets you anticipate problems weeks or months before they become crises.
   • Maintain a short-term (13-week rolling) cash forecast updated weekly
   • Build quarterly and annual projections using historical actuals, sales forecasts, and headcount plans
   • Reconcile your cash forecast to your financial model every month so both stay accurate
   • Update forecasts promptly when business conditions change — stale forecasts are worse than none
2. Run Sensitivity AnalysisModeling a range of scenarios is the difference between being surprised by a cash shortfall and having a plan ready when one emerges.
   • Model base, upside, and downside cases with clearly documented assumptions for each
   • Identify the key variables that most affect cash: revenue timing, hiring pace, and major vendor payments
   • Determine at what point in the downside scenario you'd need to raise additional capital or cut costs
   • Review scenario outputs with the leadership team quarterly and after any major business event

Monitoring Cash Flow

1. Establish Key Cash Flow KPIsReal-time visibility into cash performance lets you catch deviations before they compound into larger problems.
   • Track operating cash flow, free cash flow, and cash conversion cycle as your primary KPIs
   • Build a cash dashboard that updates daily or weekly from your accounting system
   • Report ending cash balance and months of runway at every leadership team meeting
   • Compare actuals to forecast every week and document the variance with an explanation
2. Set Alerts and Review RegularlyProactive monitoring prevents surprises — automated alerts and regular reviews ensure nothing falls through the cracks.
   • Set threshold alerts for cash balance drops below a defined floor (e.g., less than 6 months runway)
   • Flag accounts receivable aging weekly — overdue invoices are a leading indicator of cash risk
   • Conduct a formal monthly cash flow review with finance and the CEO
   • Document recurring variances and update forecast assumptions to reflect them going forward

Managing Working Capital

1. Optimize Accounts ReceivableFast collections improve your cash position and reduce the risk of write-offs — every day an invoice sits unpaid is cash you're not earning interest on.
   • Invoice immediately upon contract signing or delivery — never wait until the end of the month
   • Set clear payment terms (Net 15 or Net 30) and follow up on overdue invoices at day 1 past due
   • Offer ACH or credit card payment options to reduce friction and accelerate collections
   • Negotiate annual prepay discounts with customers to pull cash forward
2. Minimize Excess InventoryFor companies with physical goods or infrastructure spend, right-sizing inventory and vendor commitments frees up meaningful working capital.
   • Apply just-in-time principles to minimize cash tied up in inventory or prepaid commitments
   • Negotiate extended payment terms with suppliers to align outflows with inflows
   • Audit vendor commitments quarterly and eliminate underutilized subscriptions and services
   • Reassess working capital strategies as revenue grows — what works at $1M ARR differs at $10M ARR