How to get your cash flow under control… before you run out of money
Predicting the financial future of a startup can be difficult. But a financial forecast can give you structure, a clear overview and an informed estimate of how your startup’s finances might develop.
Predicting the financial future of a startup can be difficult.
Your product may still be under development. You are not entirely sure when it will be ready for the market, what customers will actually be willing to pay – or how much you will be able to sell, for that matter.
And if you are completely honest, confronting the financial outlook for your startup may not be at the top of your wish list right now.
But this is exactly when you need to do it.
And no, a financial forecast is neither a magic crystal ball nor a complete set of answers. It simply gives you structure, an overview and your best informed estimate of how your finances might develop.
That is what we call a financial forecast.
A financial forecast brings your key assumptions together in a dynamic model, allowing you to test them and see what different scenarios could mean for your business.
It may look a little technical. And yes, it might sound like something straight out of a lecture at Aarhus BSS. But trust us – getting started is easier than you might think.
At the bottom of this article, you will find a link to our Excel framework. But before you dive into it, there are a few important principles you need to understand.
1. Understand the difference between profit and cash flow
Revenue is the income your business generates. Profit is what remains after costs have been deducted.
An income statement – also known as a profit and loss statement – shows whether your business is expected to be profitable based on the assumptions you have entered.
But a business can look profitable on paper and still run out of money.
That is because revenue and payments do not necessarily happen at the same time. You might deliver a product in January but not get paid until March. In the meantime, salaries, VAT, materials and other bills still need to be paid.
A cash flow forecast shows how money is expected to move in and out of your business month by month – and therefore how much money the business is expected to have in the bank.
2. Start with your best estimate
You might be thinking: Why make a forecast when the numbers are just guesses anyway?
Because an informed estimate is better than having no overview at all.
Putting numbers against your sales price, sales volume, development costs, salaries, office expenses, tax and VAT makes your assumptions concrete. How much do you need to sell? At what price? When will revenue start coming in? And what costs will follow as the business grows?
The numbers will not be perfect the first time – nor do they need to be. Your forecast is a dynamic document that becomes more accurate as you talk to customers, test your pricing and learn more about the market.
The important thing is to start somewhere – and keep updating the model as you learn.
3. Test what happens when reality changes
A forecast becomes really useful when you use it to test different scenarios.
What happens if product development takes three months longer than expected? If you need to lower your price? If you sell half as much as anticipated? Or if the founders need to start paying themselves a salary?
By changing a single number, you can see the impact across your finances. Your forecast can reveal problems before they become urgent – giving you time to cut costs, generate revenue sooner or find additional funding.
A common mistake is to work with just one optimistic scenario. Instead, create several realistic scenarios and keep an eye on your company’s burn rate: How much money are you spending each month while building the business?
4. Know your funding requirement
If your forecast shows your cash balance dropping below zero, you have identified a funding gap.
The largest projected shortfall in your cash flow balance gives you a concrete starting point for assessing your funding requirement: How much capital will you need to cover the period until the business can fund itself?
This is crucial when talking to investors, banks or soft funding providers. Instead of simply asking for “as much as possible”, you can explain how much you need, when you need it and what the money is going to finance.
You don't need to be a finance expert
A comprehensive Excel spreadsheet can look technical. But you do not need to be a finance professional or an Excel expert to get started.
We have developed a financial forecasting framework where you enter your expected income and expenses. The model then helps you get an overview of key figures including profit, cash flow and your funding requirement.
At our Mastering Your Financial Future workshop, we take you through the model step by step and show you how to use it to understand and stay on top of your startup’s finances.
The next workshop takes place on 24 September from 12:30 to 15:00.