Cash Flow – It Belongs in the Business Plan Too
It is usually in the financial statements. But for some reason, it tends to drop off from the business plan.
What is it- it’s the cash flow statement.
Ironically, the business plan is one place where the cash flow statement could be even more important to have in. A potential investor wants to know:
1. What’s the burn rate in the short term from the business?
2. How soon before the business turns cash flow positive?
3. How many additional rounds of capital will the company require, if any?
4. Will the company be able to spin off cash from operations or will it have to go back into working capital?
5. How much money is required by other financing sources such as banks? What is the cash flow coverage to meet these obligations?
6. How intensive will the ongoing capital expenditure requirements be?
7. How fragile are the cash flow projections? What will it take to throw cash flow into negative ground or delay the positive cash flow?
Cash flow is always a very important statement, perhaps even most important of all. Income is nice but a company needs to see if it is really generating cash from the business. Otherwise, there might not be a solid business for much longer.
That’s even more important for the earlier stage company with a business plan. They need to show that they can make it past infancy and adolescence to become a thriving company.
Put in the cash flow and you have a better chance of landing the cash you need from the potential investor.
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