Forecasting Cash Needs For Startup Business

Have you read the CB Insights Report on “Why Startups Fail”? 

In this report, we found an interesting insight. It said that 38% of startups fail because they either ran out of cash/capital or failed to raise new capital to keep the business running. 

Now, think about it!

Why would a startup run out of cash?

Why would an investor not invest in a startup?

One common answer to these questions is poor cash/money management. When startups fail to report, record, manage, and utilise their money properly, things are bound to go the wrong way.

Imagine a startup founder going to an investor with losses on the balance sheet and no credible reason to explain the drainage of money. The investor won’t have any confidence in the founder. 

So the first thing startups need to know about is cash and money management. For this, they can either take the long road and learn with experience, but there will be substantial money losses. 

A better way is to take a financial modelling course from IMS proschool. This course will develop the expertise required for proper money management and help you learn more about the importance of maintaining accounts and sustaining good financial health. 

Let’s find out more about the benefits of cash and cash flow management, along with understanding the impact of learning the skill. 

What is Cash Flow Management and Why Startups Need it?

Cash flow represents the amount of money in the company’s bank account at a given time. Furthermore, cash inflows and outflows that occur as a result of your daily operations are also reflected in cash flows. 

So, when a company buys raw material and sells their produce on the same day, the money transactions here are reflected in the cash flow. 

Denise O’ Berry, the author of Small Business Cash Flow: Strategies for Making Your Business a Financial Success shares an interesting insight. She says that cash flow is the lifeblood of every business. 

Any startup has got to have money coming in before it can be put out. So, if a startup has more money going out than coming in, it means that soon they will be short of money, leading to business failure. 

That’s why taking a course in financial modelling can help founders and entrepreneurs understand the nuances of cash flow management. Let’s see how cash flow management is beneficial for a startup. 

Why Must Startups Practice Effective Cash Flow Management?

Do you know who Tim Berry is? 

He is a business plan “Expert”. Focus on the work expert and hear this. Tim Berry built a company that sells business management software called Palo Alto. Now being an expert in the field, you would expect his company to progress rapidly. 

Well, this happened, but there was a time when Palo Alto’s sales doubled, but the company was on the verge of bankruptcy. 

They almost went broke!

How can a company that has doubled the sales and still be on the way to shut down?

The reason is poor cash flow management. 

You see, Palo Alto was getting humongous sales like they had never seen before. But the money from their sales was six months late. And there goes all the working capital they dearly need for expansion and growth. 

Cash forecasting is connected to effective cash flow management, and every startup founder must learn this art. With cash forecasting, the startup owners can predict the future cash flows and identify the period where they might face a cash shortage or overflow. 

Catching the shortage part is crucial because then the founder can arrange to bridge the funding gap. 

Plus, with a cash-flow model built with financial modelling principles, a startup founder can predict the break-even point (the point where revenue and costs are equated). With this understanding, the founder can start planning the reinvestment strategies because they will know the amount of surplus cash and grow the business. 

How Does Financial Modelling Courses Help with Cash Flow Management?

A course in financial modelling will improve your understanding of cash flow management. Financial modelling educates the person in the required principles and methods that will help a startup founder create predictive plans, identify the opportunities to grow, and create a complete breakdown of the startup’s financial health. 

  1. Help with Spend Control: After setting up the business, startup founders must learn to spend control. Effective cash flow management helps with forecasting the cash needs, and the spreadsheet prepared for the purpose allows tracking and investigating the cash expenses and receipts. 
  1. Keeping a Reserve: Another important aspect of the cash flow management is that it enables the company to keep a cash reserve. A reserve will help in cushioning the company from any blows coming from unforeseen circumstances. Having a reserve will make things less hectic and easygoing. 
  1. Money Management: One of the essential aspects of cash flow management is tracking, handling, and making timely payments. Managing money without understanding the nuances will take a lot of time. But if you have taken the requisite course, the task will become more accessible and less time-consuming. 
  1. Differentiate Between Profits and Cash Flow: As the startup founder knows more about cash flow management via financial modelling courses, the difference between profits and cash flow will become clearer. Profit is one of the components of cash flow. Other variables are receivables, inventory, accounts payable, capital expenditure, and debt service. To generate profits, the startup needs positive cash flow. And the latter state is achieved when the founder practises legible accounting methods and builds understandable financial statements. 
  1. Get Owed Money: Remember the Tim Berry case? Any company selling the product or service needs to get the money owed as quickly as possible. Not doing so is not in the best interest of the company. This way, there will be sales and revenue on paper, but delaying the receipts of payment will eat up the existing cash reserve. 

But, Why Are Sales or Cash Forecasts Required?

For a startup, knowing the future sales and cash inflow is necessary. All the reasons we have given above point to the need of forecasting the cash sales and revenue. Here are a few other reasons for the same;

  • Manage the Liquidity: Besides knowing how much to spend and where cash forecasting helps with adequately planning the cash flow and liquidity. Maintaining the cash sales forecasts helps businesses satisfy their financial obligation requirements and build sustainable cash reserves. 
  • Helps with Logistics Maintenance: Another reason to predict the cash flows is to get assistance with knowing the logistics requirements. Because the cash forecasts (either inflows or outflows) are connected to the sales forecasting, startups can know the amount of cash required to complete the future orders, procurements and avoid supply-chain shortages. 
  • Created a Detailed Sales Process: Lastly, completing the forecasting needs is a great way to curate customised sales processes for every product or service. For a startup, having clarity about selling the product is crucial and helps sustain the business. 

Components of Cash Forecasting Startups Need for Clean Projections

A cash flow forecast and statement is built with the following components;

  • Accounts payable: This is the amount of money the business owes to other parties. It can be payments for services hired, raw materials, etc. 
  • Accounts Receivable: This represents the income gained from selling the products and services to the customers. 
  • Liabilities: This is the money owed to the employees, commissions, payroll, loan payments, and deferred revenue. The more clear and prepared the company is in managing these accounts, the better outcome it can get. 
  • Prepaid Payments and Assets: A startup or company’s assets include infrastructure and office equipment. The prepaid payments are depreciation on the equipment and any other prepaid expenses incurred. 

With these variables, the company can easily project the cash flow requirements. It depends on the person conducting a weekly or monthly cash flow forecast. In any case, the financial modelling course we provide can help the students learn these aspects and ensure effective forecasting. 

How Does the Financial Modelling Course by Proschool help?

IMS prochool’s financial modelling for startups course is meant to help startup founders and small business owners take control of the company’s financial health management. The course is also good for students who want to move ahead in the field of accounts management and gain expertise in financial modelling. 

The course will help the students know more about;

  • Build Suitable Skills: Building the right skills for excel is required to create spreadsheets for several purposes. Creating a spreadsheet is crucial to building accounts, maintaining data accuracy, and project financial requirements. 
  • Practical Learning: The course teaches with a practical approach with case study base methodologies. 
  • Revisiting the Basics: It brushes up the basic finance and accounting concepts based on the Level 1 CFA curriculum. 
  • Professional Advanced Training: For additional knowledge, the course will also touch upon the training of VBA-Macros and Merger & Acquisition. 
  • Covers Associated Subjects: The course prepares the students for investment banking, credit research, project financing, and equity research. 

The course begins with teaching everything about Excel and helping students gain proficiency in the same. From here, the students will move on to learn financial reporting and analysis along with knowing more about corporate finance. 

The last two modules are associated with project finance modelling and equity research modelling. In all the modules, there are sub-lessons pertaining to the detailed concepts of the given components. 

The financial modelling course at IMS proschool is meant to help the students acquire the necessary knowledge and skills to build proficient financial models. With it, they will learn about cash and sales forecasting via building financial statements and analysis reports. 


Financial modelling includes working with Excel and building an analytical mindset. It allows the person to know about the valuation methods and become a pro at financial management. Cash forecasting is one of the pivotal components in understanding and identifying the financial health of the company. 

For a startup founder, getting to know more about financial modelling for startups is like a blessing in disguise. It helps the founder understand the impact of market dynamics and in-house operations on the financial health of the organisation. 

Becoming a financial modelling expert means a great deal for a business owner as it lets the person take control of their existing business health and future requirements. At IMS proschool, we will help you learn;

  • Microsoft Excel and its functioning
  • Equity Models and Project Financing
  • Financial Reporting and Analysis
  • Corporate Finance

With these and several additional subjects covered by experts, you will be on your way to become a financial modelling expert. The NSDC and NSE certification further improves your ability to leverage high-potential job opportunities. 

Join IMS Proschool today to experience a new way of learning and get started with an advanced level of learning experience.