How to forecast cash flow with no accounting history
You can forecast cash flow with no accounting history by building the forecast from operational drivers instead of past data: what you will sell, at what price and volume, who you will employ, what you will spend and what you have raised. The financial statements are then calculated from those inputs.
Most cash flow software asks you to connect an accounting system, then projects what it finds there into the future. If you have not traded yet, there is nothing to find, and that entire category of tool has nothing to offer you. This is a solvable problem, and the solution is to build the forecast the other way round.
Who this applies to#
Pre-revenue startups, obviously. But also a business that is trading and has books which say nothing useful about the question: you are launching a new product, opening a second site, entering a new market. In those cases you have history, and it is history of a different business from the one you are asking about.
Start with what you sell#
Every product or service, with its price and what it costs you to deliver one unit. That gives you gross margin per unit, which is the single most important number in the model, because it determines how much of every sale is available to pay for everything else.
You do not need to be right. You need to be explicit. A price you can defend and a cost you have actually researched are worth more than a revenue line somebody guessed at, because when the assumption turns out to be wrong you know exactly which number to change.
Then volume, and be careful here#
How many units, through which channel, starting in which month. This is the least knowable input in the model and the one people are least honest about. Build it from something physical rather than from a market-share percentage: how many customers can one salesperson realistically close in a month, how many covers does the room hold, how many units can you actually produce.
People, costs and financing#
Who you employ and from which month, at what salary. Add employer national insurance and pension on top, because they are real and they are commonly left out. Then your fixed costs: rent, software, insurance, professional fees, marketing. Then anything you have raised or borrowed, with its repayment schedule.
These are the parts of the model you know best. A pre-revenue founder is usually uncertain about revenue and quite precise about costs, which is worth remembering when somebody tells you a forecast for a new business is pure invention. Half of it is not.
Then apply timing#
This is the step that turns a profit forecast into a cash forecast. When do customers actually pay, as opposed to when you invoice them. When do you pay suppliers. When is VAT due, and corporation tax. When do you buy equipment. Get this wrong and your forecast will be right about the year and wrong about every month in it.
Build the downside at the same time#
With no history, your central case is a hypothesis. The useful question is not whether it is right, which nobody knows, but how wrong it can be before you are in trouble. Halve the volume, delay the start by three months, stretch collections by thirty days, and see what happens to the lowest cash point. That number is the one to plan around.
What you end up with#
A forecast built this way is not less rigorous than one built from a ledger. It is rigorous in a different way: every figure traces back to a stated assumption, so anybody reading it can see what you believe and argue with it. That is exactly what an investor or a lender wants from a business that has no track record for them to inspect.