lean cash flow: simple steps to better cash management

Lean Cash FlowSimple Steps to

Better Cash Management

Ryan JohnsonVP of OperationsEGFS

#LeanCashFlow

“Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.”

~ David Ehrenberg, Founder and CEO Early Growth Financial Services

Agenda

WWW.EARLYGROWTHFINANCIALSERVICES.COM

What is "lean cash flow?"

Making assumptions

Cash flow modeling

Understanding your cash flow

Better cash flow management

Lean cash flow


“Using the Lean Startup approach, companies can create order not chaos by providing tools to test a vision continuously.”

Applying the principles of lean cash flow, you can actively control your cash management.

Lean is “about putting a process, a methodology around the development of a product.”

Lean cash flow is about putting a methodology around cash management.

Lean Startup Lean Cash Flow

Cash flow projections in an uncertain world…

• If there’s history, use it

• If there are industry examples (comps) use those as starting guidelines


Focus on assumptions

Coming up with assumptions, when you just don’t know…

Things to consider: • How much more product

development before you’re able to generate the hockey stick?

• How will you generate revenue?

• How quickly will you generate revenue?

• How many people do you need to hire?

• How much will customer acquisition cost?WWW.EARLYGROWTHFINANCIALSERVICES.COM

Building out your model from your assumptions

• Focus on assumptions• Keep model flexible; model should be driven off

assumptions as much as possible• Analyze sensitivity. Tweak assumptions – different inputs

to see how it trickles down through your model• Level of detail should match company needs; types and

amounts of activity should drive model complexity• Iterate


Cash flow model approachesHybrid

• Combination of income statement and capex

• Easier to think through from entrepreneur’s standpoint

• Some drawbacks – easy to miss items that suck up cash (e.g., working capital)


Full set of financial statements

• Includes income statement and balance sheet projections

• Cash flow forecast results from this combination

• If you want to do it right – this is how you do it!

Your cash flow forecast

• Update regularly (minimum monthly, weekly if needed)

• Use actuals to continually update projections

• Stay on top of your run rate – always know when you’re going to run out of cash


Practical tips for better cash flow management

• Close management of costs; question all spending (can we do without, can we push out?)

• Approval process in place for spending• Right processes for hiring• Manage accounts payable and accounts

receivable


Accounts payable

• Mind your cash obligations• Proper vendor

management – Set up credit with vendors – Pay with purchase order– Get payment terms– Push out payments for 30

days• Pay bills on time!


Accounts receivable• System in place to collect payments in a timely

fashion• Don’t count revenue before payments are

collected– Receivables need to be in balance with your payments– Don’t let receivables linger– Try to get cash up front– Subscription model, try to get a year upfront, or at least

quarterly – not monthly. – Use credit card and automatic payments


Consider debt financing

• Accounts receivable factoring• Asset based financing• Revenue based financing


Closing thoughts

• Knowing how much cash you have in the bank is baseline but it doesn’t give the full story. – Commitments? – Accruals?

• What does your cash flow look like over the next 6-12 months – not just today

• Need to actively monitor and manage your cash flow – if you don’t have the time or expertise to do this, you need to hire a professional


Thank you and Q&A

Ryan Johsnon

VP of Operations

[email protected]

415-234-3437

@EarlyGrowthFS


mailto:[email protected]

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