The Simple Financial Tool That Saved My Startup

Not all entrepreneurs are good with money. In my experience, many creatives and problem solvers are often thinking beyond the constraints of the here and now, their abilities, and their finances. While this is a great quality to have, understanding how cash flows in and out of your business is critical to its success.

As our business grew, the next contract was $14,000, followed by $23,000, and eventually $45,000, all within about six short weeks. It became apparent that we would need to hire additional software developers, look for office space, and ultimately, increase our overhead. My biggest concern was how we would measure if we were successful or not. Were we making any profit? Could we afford to hire these new people? We didn’t have a CPA or bookkeeper on retainer and I knew there had to be a better way.

This tool provides a visual of cash on hand, cash in, cash out, and your projected bank balance at any given week in a quarter. The weeks of each month are listed on top with the date and that week’s starting bank balance directly below. Next up, you’ll list your active clients and any payments on the week that you expect them to arrive. Lastly, you’ll list all fixed and variable expenses at the bottom. The result, a projected ending cash balance for each week if all things go according to plan.

But as a business owner, you know that things do not always go according to plan! That’s why this tool is so important because you can see your cash flow across time, make adjustments as problems arise, and prepare for financial trouble with more lead time.

It’s helpful to use different colors to track different types of payments in your revenue section. The colors you chose don’t matter as long as they have different meanings to you. Here’s what worked for me:

Invoices in purple are essentially sales goals and I’ll discuss these in more detail later.

Remember, don’t count your chickens until they’ve hatched. I’ve had clients cancel their check only to write one for a smaller amount when they wanted to slow down development on their project. Clients have their own cash flow issues! “The check is on the way” is not always true, so don’t count on payments to fall perfectly in the sheet.

In a service business, client payments can also be held up by a lack of clarity on the completion or progress of a project. From delays in scheduling to people in finance being out on PTO, there are many reasons for payments being delayed — proceed with caution.

Failing to adequately plan for moments of financial instability can put you and your company at risk. That’s why it’s crucial to have a tool that allows you to anticipate tough economic times that may arise.

In the example below, you can see that your cash will go negative from a large $7,000 expense the week of Feb 10. Looking ahead to the week of Feb 17, you’ll see a $12,000 invoice from client #5 that would keep your bank balance positive, but it’s projected to come a week too late. This immediately brings attention to a cash flow cliff and allows you some options to prepare.

In this case, you could try calling client #5 to see if they would be willing to pay a week early. You’d be surprised how many clients are willing to work with you and help their trusted partners, especially knowing that you’ll help them out down the road. Next, you can reach out to your clients and prospects to find a small project to fill the gap. Can you take on a smaller project? Can you sell up-sell your existing services? You can get creative with how to solve the gap now that you’re aware that it’s on the way.

Cash flow cliffs can also be an opportunity to offer your valued customers a reduced rate in exchange for filling a gap in your schedule. That being said, this should only be used deliberately and infrequently to not create the bigger problem of charging too little for your services. Here’s an example of an email I’d send for this type of situation:

The snapshot below shows what your cash flow will look like if the payment from Client #5 arrives the week of Feb 10. Your cash flow will be corrected and you will avoid missing any payments:

Let’s talk about labor costs. In the app agency business, our overhead scales as our revenue scales. The more custom apps we build for our clients in a given period of time, the more designers and developers we need to pay to keep up with the work.

The cash flow sheet allowed me to project future payroll expenses along with the invoices associated with those projects. This will give you a better idea of your projected cash flow with a larger team. There were months where our team member overhead would swell up by 30% or more to meet the demand. We needed to manage our cash well to deliver projects for our valued customers and keep our team members paid well and on time.

You can also experiment with increased fixed costs like adding more equipment or perhaps one-off expenses like marketing, travel, or team events.

Lastly, I mentioned invoices in purple are those that are reflected in payment schedules for contracts currently awaiting signature. For those “sales projections” you can add weights to different payment amounts to produce educated estimates of your projected cash flow.

The Contract stage of our sales pipeline had a close rate of roughly 90% which was great. We could take these payments and weight them evenly across the board (e.g. $1,000 * .90 = $900), but I chose to assign different weights based on other factors I knew for each client based on their buying habits and the dollar amounts.

Too many projected invoices on the cash flow sheet can be confusing and give you a false sense of security. For this reason, you should limit these to 2–3 deals at a time from the Contract stage on your primary cash flow sheet. If you have several deals out, I’d recommend creating a duplicate sheet that plots more of these potential deals out into the future and your CRM should provide even more robust sales forecasting tools.

Before we used this tool, it was like driving a car without an odometer or headlights. Terrifying! Sure, more robust systems exist, maybe even for free. But this is so simple and takes about 5 minutes to set up.

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