It’s time to get technical with your cash flow – TechCrunch

In this world When it comes to venture capital, we always talk about cash. Every day you hear phrases like “cash burn,” “cash runway,” and “cash on hand” from investors and founders.

Despite all this talk about cash, early-stage companies don’t analyze their inflows and outflows at a level that unlocks maximum efficiency. Why did they miss the boat? Because the concept of working capital is not widely understood.

We believe that building a rolling 13-week cash flow forecast (or longer timeline after you get going) can help you dig deeper into your finances and uncover hidden cash reserves. We encourage our portfolio companies to do this exercise in good times and bad, and to always practice forecasting in times of uncertainty.

Building a rolling cash flow forecast is the single best tool you have to understand where your money is going, identify savings opportunities, hold more cash, and delay exits as much as possible.

It’s like counting calories when you’re on a diet – once you start paying attention to empty calories, a little cheating here and there, you can see how they add up. Your company’s cash flow is no different.

Work with your entire management team for this exercise and you will all understand how powerful cash flow can be. It helps you understand the fundamental drivers of your business. For the non-financial people in your group, you can find templates online and YouTube videos to help explain the concept of cash flow.

That means there are no shortcuts. First you need to build a forecast.

Build and use cash flow forecasts

First, record each week’s projected income (flows) and all projected expenses (flows). This is a cash-based forecast, so you need to plan cash receipts, which will be based on your current contracts with your customers.

Remember to adjust the timing. Check your account for a particularly slow-paying customer so that your forecast is accurate and conservative. You can include any capital gains you make during this period in these earnings. Be real again.

Be sure to itemize all of your fixed expenses (disbursements), such as payroll, principal or interest payments, rent, and insurance. Then, detail the variable fees you pay to suppliers, vendors, IT subscriptions, marketing costs, etc.