FYI, this spreadsheet does not use words like income, profit, loss, expenditure, etc. in the same way that businesses and accountants use the terms. Be very careful if you're communicating these numbers to other parties - they may not interpret the words in the same way you intend them.
Example: Cash flow is not the same as profits/losses. If you buy a $1M CNC machine for $1M in cash, your profit is $0 but your cashflow is -$1M.
Example two: Expenditures are different from expenses. The date you agree to buy (and are legally contracted to buy) a $1M CNC machine may be different than the date that those funds leave your bank account. (And those dates may be different than the dates over which the $1M CNC machine depreciates and eventually breaks down.)
Issues like these two can cause a business to run out of cash, even when then business is making a legitimate profit. This is why an income statement detailing your profits & losses is not enough - you also need a cashflow statement.
It's not though. For example, the hardware/software purchases in month 1 are an expenditure, but would likely be a depreciation expense over a period of time.
Generally in the US, if an individual unit costs under around $5k it's easier to just count it as a one-time expense instead of dealing with a depreciation schedule.
Can you give an example? In Australia, you'd need to buy hardware or software for more than $30,000 per unit to be forced to depreciate it over multiple periods. Anything cheaper than $30,000 can be expensed right away. So I'm looking at it through Australian optics and having "Hardware/software" under expenses would be fine for almost every small business here.
Yeah, I guess you're right. It's just confusing to see them call the spreadsheet "Cashflow projections" and then use the words 'expenses' and 'profit/loss'. But then again, they also use 'expenditures', so who knows what they're going for. In their example spreadsheet (and to your point) I guess all the expenditures could correspond 1:1 with expenses, so in this case cashflow == profit maybe.
In many years of having had accounting terms explained to me and glossaries listed, I have never seen such clean, concise and effective examples and explanations of the differences between oft-confused terms. Do you have a cheat-sheet glossary of (official) accounting terms in your own words somewhere?
Really important to have a 3-statement model for your company, meaning a P&L (income statement), Balance Sheet and Cash Flow. This is especially important for companies with big gaps between cash collections and actually earning revenue (such as companies that collect annual contracts upfront but are earned monthly). We've seen a lot of companies trip up on this.
And in reverse, all of those juicy options you pay your staff with should be income statement expenses, and then reversed as non cash on the cash flow statement.
There is a free (but polished) online app to do in-depth forecasting - https://startuprunway.io It's part of a suite of other related apps for financial planning of your next startup https://ltse.com/tools
I swear by this type of cash-flow-pro-forma. It becomes a model for the business that you can share with anyone involved in the business (or would like to be involved).
In some ways it becomes my simulation engine for the business. There are ways to alter the basic sheet for different purposes, but here are my basic add-ons or differences from the sendwithses.com version.
My sheet has:
* Metrics section at the top. This CAN be dollars or units, but it can also be non-accounting metrics that are key indicators of health or risk a project faces. Like foot traffic, downloads, hours of sleep...
* Assumptions at the BOTTOM of each month - that way you have room tell the story of the changes between months. If you plan to have radio / podcast interview in July on a particularly appropriate show with an audience that should LOVE your widget, then plan for it and note that in the assumptions for that month.
* Another column between months that expresses either formulaic or raw changes for that month. Meaning, 100 more widgets or 10% more widgets. If the change is exceptional, an explanation is written up in the assumption section at the bottom of the month - see above.
* A column for Month Actual. At a glance you know what is happening. You can go nuts and add a percentage difference or just a percentage difference and skip the Actual column.
* And a column for difference between Month Actual and Month Projected.
At first you'll want to hide the change (or delta) column and historical months, but depending which hat you are wearing when you use the sheet, you'll want to show and hide different things.
Everyone in the company / project should have their own, but there should be only one master sheet.
So glad atanpur shared this...in the thousands of clients I've had, this sheet had more impact than anything else. Whether they were kids or MBA smarty pants. Build one of these and you get to play out any scenario you like. You can share this with almost anyone - taking them on the tour for the first time is really fun.
Good idea - I'll do a Show and Share within a week. I'm currently working two clients (one turnaround and one startup) through building this sheet, so I'll pay attention to the empty sheet and see how to make it more template-like.
A compromise of your vault (and hopefully not remote code execution) means the attacker at least can't blast a billion emails out at someone elses expense.
Cashflow is an unavoidable and often difficult lesson to learn. Not a bad idea at all to have a simple version like this going from basically the beginning.
That won't really affect cash flow.. If you have to recognize 1/12th of an annual subscription every month for GAAP accounting, you still have 100% of the cash up front. Your monthly income statement will only show 1/12th of the revenue, but the balance sheet will have an accrued revenue liability equal to the remaining period while cash is just.. cash.
Example: Cash flow is not the same as profits/losses. If you buy a $1M CNC machine for $1M in cash, your profit is $0 but your cashflow is -$1M.
Example two: Expenditures are different from expenses. The date you agree to buy (and are legally contracted to buy) a $1M CNC machine may be different than the date that those funds leave your bank account. (And those dates may be different than the dates over which the $1M CNC machine depreciates and eventually breaks down.)
Issues like these two can cause a business to run out of cash, even when then business is making a legitimate profit. This is why an income statement detailing your profits & losses is not enough - you also need a cashflow statement.