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Your cashflow runway.
Published 18 days agoΒ β’Β 5 min read
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Hey Reader,
I was having a conversation with a mentor of mine this past week. We ended up deep diving into the complexities of business financials. Now, he has had multiple 7-figure exits that required extensive reports and extremely detailed financial analysis, so it was interesting when we got to the 3 simple financial questions I've shared often with new side hustlers/entrepreneurs.
The reality is, while understanding your balance sheets, knowing what a general ledger is, etc, are all important and valuable, when you're first getting going (and honestly for much longer than most people think) how you look at and analyze your business finances can be much simpler than a lot of books, courses, and experts will tell you.
Now, to be clear, if you are positioning yourself to raise funds through investors and/or potentially selling some or all of your business, you're going to need a much more detailed understanding and analysis than this. You'll likely need to consult a business accountant and likely a specialized strategist
For the rest of us, the most important thing you should be worried about, in my opinion, is your cashflow runway. (sometimes called a cash runway)
Your cashflow runway is the amount of time you have until you run out of cash - the amount of time until your business is out of business.
To figure out and track your runway, you need to be able to answer these 3 questions at all times:
How much money is coming in, from where, and when?
How much money is going out, to where, and when?
When do you run out of money?
If you know those answers, you'll be able to create all those other financial documents if/when needed. More importantly, you'll have a much better understanding of the health of your business, and have a better chance of staying in business.
How much money is coming in, from where, and when?
This is your revenue. Which products or services are bringing in that revenue? How much money will actually go into your bank account after transaction fees, etc.? And when will that money actually hit your account?
How much money is going out, to where, and when?
These are your expenses. What are you spending your money on? When will that money leave your bank account?
When do you run out of money?
This, to me, is the most important one. You can't run your business if you're out of money. You can't serve people and do much good if you can't operate. To answer this one, you just put the first two together and add in any cash you may already have in the bank.
So, now we take those numbers and use this formula to begin to see our runway:
Now, that does not give you your runway just yet. But, once you do this for 3, 6, 9, 12 months out, you'll then have a running projection of your remaining cash reserve. If at any point in your projected numbers, that remaining cash reserve number is negative, that's the end of your runway - and you either need to generate more revenue before then or spend less money between now and then.
This is something we look at daily to ensure we always know where we're at as a business. I encourage you to do the same.
If you're interested in diving deeper into this, or you'd like a copy of the Google Sheet I use to help our team project and track this, hit 'reply' and let me know and I'll shoot you a template.
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π‘CONTENT CREATION IDEA
FIND NEW QUESTIONS TO ANSWER FOR YOUR AUDIENCE
Join Facebook and/or LinkedIn groups that are made up of your target audience.
Turn notifications on and visit often - making note of the questions being asked and concerns/problems/challenges being shared.
This list becomes your list of new content to create.
Yes, it's that simple.
NOTE: I am not telling you to create the content and then go spam the groups. Although, you should definitely engage with the group and provide value when you can, the purpose of this strategy is to be always listening to your target audience and let them tell you what to create - versus you guessing or asking AI.
Happy creating!
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