What can CFM actually help me figure out?

At its simplest, Cash-Flow-Model.com (CFM) helps you see what may happen financially when you buy, start, finance, operate, improve, or expand a business.

How much money will you really need? When might the business begin generating enough cash to support itself? What happens if revenue is lower than expected? What if expenses are higher? What if you hire sooner, buy equipment, borrow more money, or change the financing?

And after all of that, how much cash is left in the bank?

CFM gives you a structured way to put those assumptions together, change them, and see what happens.

How much money am I really going to need?

That's one of the most important questions CFM is designed to help answer.

Buying or starting a business is only part of the funding requirement. You may also need money for payroll, inventory, equipment, marketing, technology, construction, debt payments, operating expenses, or simply enough cash to get through the period before the business can support itself.

CFM looks beyond the initial purchase or startup cost and helps you see when cash may be needed, how much may be needed, and what happens afterward.

What happens if my assumptions are wrong?

They probably will be.

Revenue may be lower. Expenses may be higher. Hiring may happen sooner. Equipment may cost more. Financing terms may change. Something may take six months longer than expected. Something else may happen six months sooner.

That's why CFM isn't built around getting one forecast "right."

Change the assumption. Press the button. Look at what happened.

Then change something else.

The question isn't whether your original assumptions will be perfect. They won't be. The question is whether you've thought about what happens when they aren't.

What is what-if analysis?

It's really just asking questions.

What if sales are lower? What if prices increase? What if payroll is higher? What if I hire sooner? What if I wait six months to buy that equipment? What if I borrow less? What if the interest rate changes? What if I put more of my own money into the business?

CFM lets you change those assumptions and see how the changes flow through the business over time.

That's what-if analysis.

And you can do it over and over again.

Can I compare different financing structures?

Yes. That's one of the primary reasons CFM exists.

You can change the amount borrowed, interest rate, repayment terms, fees, timing, equity contributions, and other funding assumptions and then examine what those changes do to the business.

A financing structure that looks attractive because it requires less cash today may create problems later. Another structure may cost more but leave the business with greater liquidity when it needs it.

The point isn't to tell you which financing structure to choose. It's to let you see the financial consequences of the alternatives before you choose one.

What are the three most important questions when I'm looking for financing?

Start with these:

How much money do you need?

What is the collateral or security?

When does it get paid back?

Those questions sound simple until you actually have to answer them.

CFM helps you develop the financial picture behind those answers, including the amount and timing of capital requirements, financing costs, principal and interest payments, repayment timing, and the effect those obligations may have on the cash remaining in the business.

What's the difference between money needed to buy a business and money needed to operate it afterward?

A big one.

You can have enough money to buy a business and still not have enough money to operate it.

The acquisition may require a purchase price, closing costs, equipment, deposits, or other upfront capital. Then the business still has payroll, rent, inventory, utilities, marketing, debt payments, maintenance, and everything else required to keep the doors open.

CFM separates acquisition funding from operating funding because spending every available dollar getting into a business can leave you with a very uncomfortable problem afterward:

You own it. Now how are you going to pay for everything?

Can I use CFM while I'm talking to a lender or investor?

Yes.

In fact, that's how CFM has been used in actual funding discussions.

If someone questions a revenue assumption, change it. If they suggest a different financing structure, change it. If they want to know what happens with a different interest rate, repayment schedule, expense level, or amount of capital, change it and look at the result.

Instead of saying, "We'll revise the projections and get back to you," you can examine alternatives while the discussion is happening.

That's exactly what happened in the real-world meetings described in our Case Study.

My Income Statement says I'm profitable. So why am I running out of cash?

Because profit and cash aren't the same thing.

A business may show a profit while also making principal payments on debt, buying equipment, carrying inventory, funding growth, making payroll, or waiting for customers to pay.

That's why CFM doesn't stop at the Income Statement.

CFM integrates the Income Statement, Balance Sheet, Statement of Cash Flows, and Funding Schedule so you can see how operating activity, assets, liabilities, financing, and cash interact over time.

A profitable business can still have a cash problem.

And cash problems have a nasty habit of becoming everybody's problem.

What are Operating Breakeven and Ending Bank Balance?

They're two numbers worth watching, but for different reasons.

Operating Breakeven helps show when the business's operating activity reaches the point where it can support its operating costs.

Ending Bank Balance shows what is expected to remain in the bank after the month's activity is taken into account.

A business can be moving toward profitability and still burn through cash getting there. That's why CFM looks at both.

One helps you understand when the operation begins supporting itself.

The other helps you understand whether you have enough cash to get there.

What happens if my Ending Bank Balance goes negative?

The model is telling you something needs attention.

Maybe revenue isn't arriving quickly enough. Maybe expenses are too high. Maybe the business needs more operating capital. Maybe the financing terms are creating too much pressure. Maybe a capital expenditure should be delayed. Maybe the purchase price is too high.

So change something and see what happens.

The objective isn't to make the red number disappear by inventing a better assumption. It's to determine whether there is a reasonable business or financing solution to the problem.

Can CFM help me determine whether I'm paying too much for a business?

It can help you examine that question.

Suppose the business works at a $2 million purchase price but requires uncomfortable amounts of debt, equity, or operating cash at $3 million. Or suppose the higher purchase price creates debt payments that drain liquidity even though the underlying business remains profitable.

Change the acquisition price and look at what happens.

Then change the financing.

Then change reasonable operating assumptions.

CFM doesn't decide what a business is worth for you. It helps you see whether the price and financing structure you're considering make financial sense under the assumptions you've entered.

What if sales come in slower or expenses are higher than I expected?

Change them. That's exactly the kind of question CFM is built to examine.

Lower the revenue assumptions. Increase payroll. Increase vendor costs. Change marketing expenses. Delay growth. Move an equipment purchase. Change the financing.

Then look at what happens to profitability, cash flow, funding requirements, Operating Breakeven, and Ending Bank Balance.

Sometimes a relatively small change doesn't matter much.

Sometimes it changes everything.

It's better to find that out while you're sitting in front of the model than six months after you've spent the money.

Does CFM predict what is going to happen?

No.

Nobody knows exactly what revenue will be 37 months from now, what an unexpected repair will cost, when a customer will leave, whether commodity prices will change, or what other surprise may show up.

CFM is a decision-making and scenario-analysis tool, not a crystal ball.

It shows what the financial results may look like if the assumptions you enter occur.

Then it lets you change those assumptions and ask, What happens now?

What happens if I put bad assumptions into the model?

You'll probably get a beautifully calculated bad answer.

CFM can calculate the financial consequences of the assumptions you provide, but it cannot make an unrealistic assumption realistic.

If you assume sales will triple when there is no reasonable basis for that assumption, CFM isn't going to argue with you. It will calculate what happens if they do.

That's another reason what-if analysis matters. Don't just model what you hope happens. Test what happens if you're wrong.

Are the financial statements integrated?

Yes.

CFM produces fully integrated GAAP-compliant financial statements, including the Income Statement, Balance Sheet, and Statement of Cash Flows.

Changes to Revenue, Expenses, Assets, Funding, and Assumptions flow through the model so you can examine not only whether the business appears profitable, but what happens to assets, liabilities, financing, cash flow, and liquidity over the 84-month planning period.

That's important because businesses don't operate on an Income Statement alone.

Is CFM only useful if I'm trying to borrow money?

No.

You might be evaluating an acquisition with your own cash. Starting a business. Considering an expansion. Buying equipment. Hiring employees. Opening another location. Evaluating an investment. Changing prices. Planning capital expenditures. Or simply trying to understand what your business may look like under different assumptions.

Financing is an important part of CFM because financing is an important part of many businesses.

But the larger question is much simpler:

What happens financially if I do this?

Is CFM only for large businesses?

No.

A small business can run out of cash just as effectively as a large one.

CFM is designed for entrepreneurs, business owners, buyers, operators, investors, startups, growing businesses, and established companies that want to understand the financial consequences of their decisions.

The numbers may be different.

The questions usually aren't.

What if I keep changing things and the deal still doesn't work?

Then maybe it doesn't work.

That's not a failure of the CFM. That may be one of the most valuable things it can tell you.

Change the purchase price. Change the financing. Change expenses. Change revenue assumptions. Delay capital expenditures. Add equity. Try reasonable alternatives.

But if the numbers still don't make sense, CFM isn't there to convince you to do the deal.

Sometimes the answer really is:

Pass.

It's much cheaper to discover that before you've committed the money.