Cash flow statement

The cash flow statement is a central steering document of any startup. It shows how much money is currently on your account, and what is expected to happen to your account status in the future. By estimating how money is coming in and how much money is going out in each month you can estimate the runway of your startup. Considering that most ambitious tech startups are loosing money, it is critical to understand the runway.

While the profit and loss statement (P&L) is the central financial document for established companies, the CF statement is what is important for startups. It is crucial that the startup CEO intimately knows this document – at least until there is a CFO who is responsible for keeping it updated.

Is a P&L and balance sheet also needed for startups? Yes, you will need it for the Annual General Assembly (AGM) and for tax purposes. But in many cases it is enough if your accountant prepares this once a year.

Practical tips and template

We have seen startups who don’t do financial forecasting at all with the argumentation that projections will be wrong anyway. And we have seen startups who built super complex financial documents, with integrated CF statements, P&L, balance sheets, reflecting different payment terms per customer segment, changing FX rates etc.

Both does not make sense from our point of view: It is true that projections are highly dynamic in the startup world. Especially revenues are notoriously difficult to be estimated (they are delayed in most cases). Having said this, the cost side can be planned well – at least over the short-term – and doing this jointly with an in-depth understanding of the revenue mechanism is crucial.

Most CF statements we have seen are way too complicated. It does not make sense to focus on the details, but getting the big picture right. And it is crucial that it is updated monthly, based on the latest figures. This should not take more than 1 hour.

For most early stage startups up to a few million USD of revenue a spreadsheet with 20-50 rows will be enough. A template used in practice can be found here:

Further readings

See Phase 3 for actionable insights about liquidity planning, including practical guidelines for revenue growth etc.