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Cash Sentimental

Writing  ✺  Finance  ✺  Study case
Kate Dehler

A few months ago, I implemented a wildly impressive Cash Management system for a client. It was cool.

This is an opportunity to revisit it to delve deeper into the topic, and to enable you to envision the journey to mastering your cash (it’s not that complicated).

1 - Context

A startup that has raised funds twice, with a few million in reserve.

Profitability has not yet been reached, but it's within sight. A good volume of transactions, a high but normal burn rate (hehe).

The CEO wants to:

Luckily, that’s exactly what Cash Management is for. 🥹

2 - The Method

It involves four successive phases:

Understand - Forecast - Structure - Process

(not sure the last word actually exists)

Let's examine each of these points one by one!

a) Understand

We'll start by mapping:

The idea is to understand how cash is collected, how it goes out and circulates within the entity to identify potential gaps (and thus risks) in the process.

This is a super important phase for everything that follows.

b) Forecast and Anticipate

The Business Plan (BP) is the main element that will allow us to project our cash flows.

So, we'll start by revising this BP to ensure it provides sufficient data to project cash.

Then we set up a five-year cash flow forecast, which directly stems from the BP by adding a few assumptions about receipts and disbursements of BP revenues and expenses.

Thanks to this forecast, some really fun calculations to make:

This quite macro forecast will be broken down into two more micro forecasts:

We have all the reports we need.

It is now possible to integrate a routine of Forecasts VS Actuals, that is, comparing the actual movements from the past month VS the forecast

At the same time, we will insert into these reports an alert threshold mechanism adapted according to the real and anticipated evolution of cash.

We now have a solution for proactive liquidity management, which is great.

c) Put in structure

Now that we have the means to anticipate and forecast our cash flows, we have a great understanding of what's happening. We can now add some structure.

First, we'll rationalize the bank accounts, their use, and where we place them (traditional bank, neo-bank).

This rationalization will also make the cash in each bank account "make sense" (emergency funds, financing working capital needs, investments, or a future significant cash burn, etc.). Very useful for clarity and implementing controls.

All while optimizing banking fees, that is, avoiding unnecessary bank commissions. They add up fast for no added value.

We end up with a "target structure" of our bank accounts, adapted to the client’s challenges.

d) Put processes in place

The last step is setting up relevant processes to control how cash enters and exits the company.

For outgoing flows, reorganize:

For incoming flows:

3 - The Result

Three main outputs:

4 - Bonus

A little touch to finish off beautifully:

That's it, I hope you enjoyed this little client case.