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TCN Cash flow workshop slides

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The Capital Network
The Capital Network

Cash flow is the lifeblood of a startup. Effective cash flow management is fundamental to a business’s success. As a founder, understanding your cash position is super important and you must have a firm grasp of cash flow mechanics to keep your business operating smoothly. To help you stay on top of it, in this webinar, we’ll break down the basics of cash flow management and provide tips so you can guarantee a healthy cash flow for your business. With a clear understanding of your company’s cash flow, you can get through downturns and be in a strong position to grow in a new post-COVID environment.

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thecapitalnetwork.org @TCNUpdate Managing Cash Flow Workshop Johnnie Walker Co-founder, Rooled Lisa Frusztajer Angel Investor, The Capital Network, Portfolia, Pipeline Angels, Next Wave Ventures
1. Please rename yourself in this format: First Name - Company Name (e.g. Jingjing - The Capital Network) 2. Please mute yourself when you’re not talking. 3. Introduce yourself in the chat box! 4. Questions regarding the topic can be submitted to EVERYONE in the chat box! 5. Questions regarding technical issues can be sent as a PRIVATE message to Jingjing. Meeting Instructions Any questions/feedback, email team@thecapitalnetwork.org
Fundraising is hard. You don’t have to do it alone. The Capital Network (TCN) is a non-profit that provides workshops, events, mentorship, and a network to support you, the founder. Let TCN help you OWN YOUR RAISE. TheCapitalNetwork.org @TCNupdate
Why Does Cash Flow Matter? 01.
Why Does Cash Flow Matter? LF Lifeblood of the business Key indicator Cushions ups and downs, e.g. COVID Funds expansion
What Does Cash Flow Mean? 02.
What Does Cash Flow Mean? ● Financial statements ● Performance indicator ○ Expenses ○ Overhead ○ Burn rate ○ ROI ● How is cash flow calculated? LF
Managing Cash - Tools ● Receivables ● Payables ● Investment, ROI ● Expenses ● Terms LF
Managing Cash For A Startup Managing: ● Getting to cash flow positive ● Capital efficiency ● Runway LF
To Whom Does Cash Flow Matter? 03.
- Stay afloat - Pay Employees Service providers Yourself - Service debt - Invest in the business Founders - Key indicator - Rules of thumb - Burn rate - Cash runway Investors Employees / prospective employees as you build a team - Cash vs. equity - How / whether to pace hiring - Cash flow and fundraising strategy Employees To Whom Does Cash Flow Matter? LF Typical questions: When will you get to cash flow positive? What’s your breakeven / burn rate / runway? What’s the cash contribution from various revenue streams? How will you use cash raised?
What Do Funders Want To Know About Cash? ● Runway ● Cash flow positive ● Debt service ● Cash efficiency ● Options for managing cash ○ Expense control ○ Flexibility to preserve ○ ROI ● Cost of cash LF Sources & Uses Milestones Assumptions
Sources of Cash Flow & Associated Costs 04.
Sources of Cash Flow & Associated Costs Source Cost Pros Cons Comments Personal savings Low $ cost Demonstrates ‘skin in the game.’ Ready source of funds. Deplete savings. Potentially limited runway. Potentially high risk Investors High Potentially larger amounts. Support from investors. Accountability, expectations, reporting. Consumes a lot of time. Depends on investor -- what they contribute & what they expect Grants / Loans Low Non-dilutive Demanding reporting requirements, application process. Can be one-time. Business revenue Varies Supplied by ongoing operations Defer investing in the business, dampen growth Other? LF
Impact & Opportunities Of Business Model On Cash 05.
Impact Of Business Success Looks really great….?
Impact Of Business Success Nope.
Impact Of Business Success ● From that example: Sudden spike in orders / interest and effect on cash ○ Monitor closely your receivables/AR aging ○ Figure flexibility on payables/costs ● Diversion from core business -- how to assess ● Crunch to raise cash and consequences - see the Case Study coming up Let’s look at other ways to source cash...
Use Customer Cash As Financing ● Pay in advance: consultants, architects, nearly all services ● Matchmaker: eBay, Expedia, Airbnb ● Subscription: Netflix, SaaS, B2B SaaS ● Scarcity: Zara ● Service to product: Microsoft
Case Study In Surprises 06.
Case Study - Raising Equity & B2B SaaS ● B2B business model ● Invoices issued monthly on recurring contracts with 30 days payment terms ● Concurrently raising $5MM Series; 6-month projected timeframe
Initial Projection
Case Study - Two Surprises... 1. Enterprise customers had protracted AP process, average days receivable increased to 90 days (3 months) 2. Equity raise took longer than expected, 3 months additional time - close pushed out to August So, 3 months in...
As It Happened... Solution: secured quick turnaround on term loan for cash coverage through to close
Cash Flow Templates 07. JW
Indirect Cash Flow Projection Changes in Working Capital = Current Assets minus Current Liabilities Doesn’t give you visibility of the actual cash transactions... ...and is confusing, right?
Indirect Statement - One Of Three ● Indirect statement is very common format in accrual-based financials ● It reconciles activity on the income statement and balance sheet to starting and ending cash ● It’s an essential element of a comprehensive projections model But: ● It is generally not intuitive for detailed, granular cash planning
Direct Cash Flow Projections - Simple Cash-based financial statement!
Cash Flow Projections - Comprehensive
Template : Cash Balance Calculation
Template : Actuals vs Forecast
Template : Scenarios 1+2
Template : AP (From Accrual Financials)
Template : Opex
Template : Opex, Timing Breakdown - Assumptions include specific timing - Usage of in-cell notes to communicate assumption basis - AP is handled on separate schedule
When Do You Use Indirect vs Direct? □ Use Indirect as part of comprehensive projections if: ■ you’re projecting runway over some number of months, e.g. 6+, AND ■ you have accrual-based financial reporting; ■ the income statement and balance sheet are your main tools □ Use Direct if: ■ you need to manage short-term cash, e.g. 0-6 months, or ■ you only have cash-based financials □ Note: Direct projections require additional work beyond accrual-based reporting ■ You are building a cash-based perspective of the financials
Additional Resources 08.
Additional Resources ● How to Manage Cash Flow ● The 10 Absolutely Must-Follow Cash Flow Rules ● Cash Management Basics ● All Raise Webinar on Cash Flow Recap ● How businesses manage money: Cash Flow Explained ● Cash Flow template in google sheets ● Cash Flow statement Template by CFI ● Operating Cash Flow Ratio
Glossary 09.
Overhead Amount you spend to run the organization Burn Rate Total expenses to run the company expressed in dollars. Generally a monthly number, i.e. "monthly burn" Accounts Payable Money you have to pay to vendors. Terms vary, e.g. payable in 30 days, 60 days, etc. Accounts Receivable Money owed to you by vendors -- funds you will receive. Terms vary, e.g. payable in 30 days, 60 days, etc. P & L Profit & Loss statement, or the income statement Cash Flow Positive Cash you bring in is greater than what you’re spending. Company is not necessarily profitable. Cash Flow Negative Cash you bring in is less than what you’re spending
Statement of Cash Flows Accounting report showing cash on hand at the start of the reporting period, inflows and outflows, then cash on hand at the end of the reporting period. Income Statement See P&L Cash Basis Accounting method that recognizes revenue and expenses when cash is received or paid out Accrual Accounting Accounting method that recognizes revenue and expenses regardless of when cash is received or paid out Working Capital Current assets net of current liabilities; measure of short-term health of a company
42 @TCNupdate https://thecapitalnetwork.org/events/ Upcoming TCN Webinars

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TCN Cash flow workshop slides

  • 1. thecapitalnetwork.org @TCNUpdate Managing Cash Flow Workshop Johnnie Walker Co-founder, Rooled Lisa Frusztajer Angel Investor, The Capital Network, Portfolia, Pipeline Angels, Next Wave Ventures
  • 2. 1. Please rename yourself in this format: First Name - Company Name (e.g. Jingjing - The Capital Network) 2. Please mute yourself when you’re not talking. 3. Introduce yourself in the chat box! 4. Questions regarding the topic can be submitted to EVERYONE in the chat box! 5. Questions regarding technical issues can be sent as a PRIVATE message to Jingjing. Meeting Instructions Any questions/feedback, email team@thecapitalnetwork.org
  • 3. Fundraising is hard. You don’t have to do it alone. The Capital Network (TCN) is a non-profit that provides workshops, events, mentorship, and a network to support you, the founder. Let TCN help you OWN YOUR RAISE. TheCapitalNetwork.org @TCNupdate
  • 4. Why Does Cash Flow Matter? 01.
  • 5. Why Does Cash Flow Matter? LF Lifeblood of the business Key indicator Cushions ups and downs, e.g. COVID Funds expansion
  • 7. What Does Cash Flow Mean? ● Financial statements ● Performance indicator ○ Expenses ○ Overhead ○ Burn rate ○ ROI ● How is cash flow calculated? LF
  • 8. Managing Cash - Tools ● Receivables ● Payables ● Investment, ROI ● Expenses ● Terms LF
  • 9. Managing Cash For A Startup Managing: ● Getting to cash flow positive ● Capital efficiency ● Runway LF
  • 10. To Whom Does Cash Flow Matter? 03.
  • 11. - Stay afloat - Pay Employees Service providers Yourself - Service debt - Invest in the business Founders - Key indicator - Rules of thumb - Burn rate - Cash runway Investors Employees / prospective employees as you build a team - Cash vs. equity - How / whether to pace hiring - Cash flow and fundraising strategy Employees To Whom Does Cash Flow Matter? LF Typical questions: When will you get to cash flow positive? What’s your breakeven / burn rate / runway? What’s the cash contribution from various revenue streams? How will you use cash raised?
  • 12. What Do Funders Want To Know About Cash? ● Runway ● Cash flow positive ● Debt service ● Cash efficiency ● Options for managing cash ○ Expense control ○ Flexibility to preserve ○ ROI ● Cost of cash LF Sources & Uses Milestones Assumptions
  • 13. Sources of Cash Flow & Associated Costs 04.
  • 14. Sources of Cash Flow & Associated Costs Source Cost Pros Cons Comments Personal savings Low $ cost Demonstrates ‘skin in the game.’ Ready source of funds. Deplete savings. Potentially limited runway. Potentially high risk Investors High Potentially larger amounts. Support from investors. Accountability, expectations, reporting. Consumes a lot of time. Depends on investor -- what they contribute & what they expect Grants / Loans Low Non-dilutive Demanding reporting requirements, application process. Can be one-time. Business revenue Varies Supplied by ongoing operations Defer investing in the business, dampen growth Other? LF
  • 16. Impact Of Business Success Looks really great….?
  • 17. Impact Of Business Success Nope.
  • 18. Impact Of Business Success ● From that example: Sudden spike in orders / interest and effect on cash ○ Monitor closely your receivables/AR aging ○ Figure flexibility on payables/costs ● Diversion from core business -- how to assess ● Crunch to raise cash and consequences - see the Case Study coming up Let’s look at other ways to source cash...
  • 19. Use Customer Cash As Financing ● Pay in advance: consultants, architects, nearly all services ● Matchmaker: eBay, Expedia, Airbnb ● Subscription: Netflix, SaaS, B2B SaaS ● Scarcity: Zara ● Service to product: Microsoft
  • 21. Case Study - Raising Equity & B2B SaaS ● B2B business model ● Invoices issued monthly on recurring contracts with 30 days payment terms ● Concurrently raising $5MM Series; 6-month projected timeframe
  • 23. Case Study - Two Surprises... 1. Enterprise customers had protracted AP process, average days receivable increased to 90 days (3 months) 2. Equity raise took longer than expected, 3 months additional time - close pushed out to August So, 3 months in...
  • 24. As It Happened... Solution: secured quick turnaround on term loan for cash coverage through to close
  • 26. Indirect Cash Flow Projection Changes in Working Capital = Current Assets minus Current Liabilities Doesn’t give you visibility of the actual cash transactions... ...and is confusing, right?
  • 27. Indirect Statement - One Of Three ● Indirect statement is very common format in accrual-based financials ● It reconciles activity on the income statement and balance sheet to starting and ending cash ● It’s an essential element of a comprehensive projections model But: ● It is generally not intuitive for detailed, granular cash planning
  • 28. Direct Cash Flow Projections - Simple Cash-based financial statement!
  • 29. Cash Flow Projections - Comprehensive
  • 30. Template : Cash Balance Calculation
  • 31. Template : Actuals vs Forecast
  • 33. Template : AP (From Accrual Financials)
  • 35. Template : Opex, Timing Breakdown - Assumptions include specific timing - Usage of in-cell notes to communicate assumption basis - AP is handled on separate schedule
  • 36. When Do You Use Indirect vs Direct? □ Use Indirect as part of comprehensive projections if: ■ you’re projecting runway over some number of months, e.g. 6+, AND ■ you have accrual-based financial reporting; ■ the income statement and balance sheet are your main tools □ Use Direct if: ■ you need to manage short-term cash, e.g. 0-6 months, or ■ you only have cash-based financials □ Note: Direct projections require additional work beyond accrual-based reporting ■ You are building a cash-based perspective of the financials
  • 38. Additional Resources ● How to Manage Cash Flow ● The 10 Absolutely Must-Follow Cash Flow Rules ● Cash Management Basics ● All Raise Webinar on Cash Flow Recap ● How businesses manage money: Cash Flow Explained ● Cash Flow template in google sheets ● Cash Flow statement Template by CFI ● Operating Cash Flow Ratio
  • 40. Overhead Amount you spend to run the organization Burn Rate Total expenses to run the company expressed in dollars. Generally a monthly number, i.e. "monthly burn" Accounts Payable Money you have to pay to vendors. Terms vary, e.g. payable in 30 days, 60 days, etc. Accounts Receivable Money owed to you by vendors -- funds you will receive. Terms vary, e.g. payable in 30 days, 60 days, etc. P & L Profit & Loss statement, or the income statement Cash Flow Positive Cash you bring in is greater than what you’re spending. Company is not necessarily profitable. Cash Flow Negative Cash you bring in is less than what you’re spending
  • 41. Statement of Cash Flows Accounting report showing cash on hand at the start of the reporting period, inflows and outflows, then cash on hand at the end of the reporting period. Income Statement See P&L Cash Basis Accounting method that recognizes revenue and expenses when cash is received or paid out Accrual Accounting Accounting method that recognizes revenue and expenses regardless of when cash is received or paid out Working Capital Current assets net of current liabilities; measure of short-term health of a company