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I want to create pro-forma financial statements including direct cashflow statement and use it for cash-flow management (monthly). Is it a good idea?

Vanessa Kruze Kruze Consulting

Vanessa Kruze

CEO and Founder of Kruze Consulting

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I want to have overview of also of balance sheet and P&L and do not want to hold separate model for cashflow forecasting/management.

Yes, of course this is a good idea. We help a lot of Founders build these financial models. It’s a collaborative process because we have built a ton of models but the Founders know their business best.

You want to begin by isolating 4 or 5 Key Performance indicators (KPI) for your business. Let those metrics drive your business. They might be # of users/customers, revenue per user/customer, churn rate, customer acquisition cost, etc.

Once you have these metrics, use them to drive your Income Statement. Be realistic about your growth rates and costs so you don’t end up with an overly optimistic model.

Use the Net Income from the P&L to flow into the the Cash Flow Statement and Balance Sheet. Don’t forget to accurately project how much Cap Ex you will need to invest in. Also, you will have Changes in Working Capital to account for. Most businesses that start growing quickly need a lot of Working Capital. You will make these assumptions on the Balance Sheet and the differences will materialize on the Cash Flow Statement.

A lot of Founders don’t build a proper Cash Flow Statement because it’s hard, but you need the 3 Statement Model to accurately predict your Cash Burn and Runway. It’s a great exercise and I find Founders really understand their business after connecting everything in the model. :)

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