What is cash flow planning?

Cash flow planning is NOT accounting. Remember that. There are some key differences between cash flow (or liquidity) planning and accounting. In fact, your accounting numbers are likely to vary greatly from any cash flow planning you do. Both are still important. Essentially, accounting ensures that the way you report and record your business’s financial transactions is in compliance with the law. Cash flow planning, on the other hand, is making sure you have the funds available to continue operating your business.

Financial accounting:

“Financial accountancy is governed by both local and international accounting standards. Generally Accepted Accounting Principles (GAAP) is the standard framework of guidelines for financial accounting used in any given jurisdiction. It includes the standards, conventions and rules that accountants follow… in the preparation of financial statements.”

Cash flow planning:

“Cash flow forecasting is important because if a business runs out of cash and is not able to obtain new finance, it will become insolvent. Cash flow is the life-blood of all businesses—particularly start-ups and small enterprises.”

4 benefits of SaaS cash flow planning

Visualize your burn rate and runway

VC-funded startups, by definition, are running on limited resources, with a looming deadline on when they’ll run out of cash. You might be in a similarly time-constrained position if you choose to bootstrap. It’s important to know what your runway looks like so you can plan monthly expenses accordingly.

Simulate difference cash flow scenarios

The good, the bad and the ugly. It’s a good idea to simulate each one of these scenarios in order to plan for the future. The goal of this exercise is to reduce uncertainty and develop plans for handing a range of different scenarios. As humans we’re optimists, predisposed to assume the best-case outcome is what will happen. Scenario planning helps you visualize the less-rosy cases, so you can be better prepared for the future.

Optimize expenses across the company

Laying out all your expenses on a spreadsheet can be a really healthy exercise. You’re likely to see expenses that are redundant or otherwise don’t make much sense. For instance, are you paying for individual licenses when you could save money on a business plan? Are you paying for two different systems that do essentially the same thing? These cost-saving opportunities might be invisible otherwise.

Increase forecasting accuracy

More accurate forecasting allows all-around greater confidence in making decisions, reporting your business performance to investors and planning expenses for the coming months. Doubt slows down decisions — and decisions are the one things startups can’t afford to take their time on.

Common cash flow planning mistakes

Confusion around timing

When does your money actually come in, and when does it go out? For some businesses, monthly planning might not be granular enough. For instance, at ChartMogul, most of the money we collect in one month is only deposited into our account at the beginning of the following month — so money from February actually gets put into our bank account in early March. If you pay anything annually — like a SaaS invoice or insurance — this needs to be considered in the operational expenditure (OPEX) plan.

Over-optimism, AKA always betting on best-case outcomes

It’s natural to want to see — and believe in — the best outcome of any scenario. Overly optimistic planning is common, especially when it comes to OPEX. But cash flow planning, by its nature, can’t be optimistic. There will almost always be a surprise expense that will need to be covered. Adding in some buffer for these unexpected expenses is definitely a good idea. This is why scenario planning is so important: it helps you predict the outcomes for a range of events, so you can be ready for the worst while still working toward the best.

Not accounting for future growth in costs

Planning for an increase in headcount is an obvious component of any financial plan. But there are other costs associated with growth that are often forgotten — some minor, and some serious.

  • Minor: Plan expansion in SaaS tools like Zendesk, Slack, Google Apps.
  • Medium: Salary raises and bonuses for existing employees, an increase in travel budget.
  • (Potentially) Major: Office expansion or migration, an increase in advertising budget, increased headcount in back-office positions (e.g., finance, ops, HR).

Missing details

It’s tempting to cut corners — after all, you’re a small business and you have important things to do! However, lumping individual line items together — e.g., Miscellaneous SaaS: $4,000 / month — can come back to bite you. While this might feel okay, all of the real benefits of proper planning — like removing redundancies — silently disappear. To make matters worse, the output still feels like proper planning, and you might not take accuracy into account when making decisions on predicted scenarios.


How ChartMogul manages cash flow planning

Cash flow planning at ChartMogul is made up of three main elements:

  1. Expense tracking
  2. Scenario planning
  3. Revenue tracking

The tools we use:

As a small business, we’re able to manage cash flow planning with just a few tools: Candis.io and Microsoft Excel.

Candis is an expense tracking software that’s focused on the German market. (If you’re outside of Germany, you can look into alternatives like QuickBooks, Kashflow and Xero.) We like Candis, because it helps us save time and simplifies expense tracking by:

  • Auto-importing transactions from credit cards, bank accounts, and services like PayPal, as well as receipts from emails and manual uploads.
  • Auto-matching of transactions with receipts.
  • Preparing accounting in according with German General Accepted Accounting Principles (GAAP).

Despite the functional improvements of Google Sheets and other tools, Microsoft Excel remains the CFO’s tool of choice for financial planning, largely due to is macro and pivot table support.

Our close-of-month workflow

At the end of each calendar month, we:

  1. Bulk export the month’s expenses from Candis as a CSV.
  2. Import the CSV into an Excel sheet.
  3. Clean up the CSV file and expense classifications.
  4. Copy and paste the data into our Financial Planning template (see below).
  5. Run an Excel macro to update pivot tables and consolidate expenses.

Download our scenario planning template

This Google Sheets template is a slightly simplified version of what we use at ChartMogul to make business decisions with greater confidence. You can access it for free — no email required!

Access The Template

How to use the template

First, fill in the global parameters at the top of the sheet:

  • First month: The starting month for your planning.
  • Markup for expenses: A percentage buffer to allow for unexpected monthly expenses.
    • Tip: Try to plan OPEX in as much detail as possible throughout, so that any buffer is encapsulated here and only here.
  • Cash collection rate: An estimated percentage of gross MRR collected as cash. Remember, MRR is not a reflection of actual cash in the bank, due to things like annual payments, billing system fees and other irregularities.

Then fill in the parameters for the first scenario.

  • Scenario Name: “Best case”, “Plan A”, whatever you prefer!
  • Revenue Growth MoM in $ / Revenue Growth MoM in %: Choose only one of these, and enter the expected revenue growth for the scenario.
  • Cash in Accounts - Beginning of Month: Fill in the first cell only.
  • Expenses - Actual or as Planned: Fill in each month’s expenses, either what you’ve previously incurred or what you anticipate in future months.
  • MRR / Revenue - Actual or as Planned: Fill in the first cell only to represent your starting MRR.
  • Manual Adjustments: This row exists to include any costs or adjustments that aren’t already in this plan. This could be cash collection fluctuations or small inflows of cash. You can also use it to see how planned hires will affect the company’s cash flow.

Once your first scenario is complete, you’ll go through the same steps to create two additional scenario plans — this could be your “middle case” and “worst case” or something more specific to your business strategy.

Once you’ve plotted out your scenarios, scroll down and you’ll see a projected Cash in Account chart below, which will look something like this:

How to interpret your cash flow projections

Before digging in, take a look at the numbers. Do they seem sensible to you? If they clearly don’t line up or feel wrong, you need to look back into the expenses to try and understand where things went wrong.

Okay, all good? Let’s get to the fun part! (No, really!) Typically what we do from here is take a look at the manual adjustments. It’s this row where we can play with different mini scenarios and quickly get an estimate that shows the impact of different events on our future cash flow. Use the manual adjustments line for:

  • Cash collection adjustments: If your cash collection turns out higher or lower than expected, you’ll want to update this line to reflect reality.
  • Different hiring scenarios: Want to see how that all-important first VP hire might impact your plan? Or perhaps whether you could grow your marketing team before raising that next round? This is where the manual adjustments row comes in.
  • Funding: For major planning around funding rounds, you’ll want to break out into an entirely different model, but for a quick estimate you could add funding here too.
  • Smaller forms of cash inflow: Government grants or loans, or other forms of financial support can also be added here to get a quick sense of their impact.

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