Lean Cash Flow: Simple Steps to Better Cash Management
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Transcript of Lean Cash Flow: Simple Steps to Better Cash Management
“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
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What is "lean cash flow?"
Making assumptions
Cash flow modeling
Understanding your cash flow
Better cash flow management
Lean cash flow
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“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
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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
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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)
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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
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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
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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!
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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
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Consider debt financing
• Accounts receivable factoring• Asset based financing• Revenue based financing
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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
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Thank you and Q&A
Ryan Johsnon
VP of Operations
415-234-3437
@EarlyGrowthFS
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