The One-Page Cash Plan for Early-Stage Startups [Excel model included]

Your startup’s cash is the fuel of its validation journey. Go out of it, and your dream is over. So, that’s why a cash plan is a non-negotiable item on your to-do list, from day one.

Well, maybe you rolled your eyes when you read “cash plan”—because you thought about “Balance Sheet”, “Cash Flow Report”, “Income Statement”, “Valuation”, “Cap Table”, and so on.

But, don’t freak out about all these financial reports, for now. Although they’re important, I suggest you start with something much simpler. A one-page cash plan.

So…What Is A Cash Plan?

A cash plan is a one-page living document in which you express how you intend to invest your early-stage startup’s money, in order to validate your idea. It reports your cash allocation strategy, as well as the impact of this strategy on your cash flow, cash balance, and cash metrics.

But, hey… I don’t want you to invest one second of your precious time building it. That’s why I’m giving you my Cash Plan Excel model for free — Download it here.

A full screenshot of the Cash Plan Excel model

Okay, now that you have the model on your hands, let me tell you what it can do for your early-stage startup.

Why A Cash Plan Is A Top Priority in The Early Stage

A clear and concise picture of your early-stage startup’s cash can really change the game for you.

A cash plan makes you smarter about your cash allocation

The first benefit of a cash plan is to visually organize your cash allocation. Because there are a gazillion different ways you use your cash, registering your intentions is paramount. For example, you can hire a dedicated team to build your app or you can choose to outsource your app’s development.

Simply forcing yourself to be explicit about your cash items will make you aware of your strategy (or the lack of one).

And through a clearer perspective, you’ll better assess your cash decisions—Am I spending too much? Am I considering the right items?

Also, your cash plan helps you simulate any changes you make to your plan. Let’s suppose you’re considering cutting the rent by half. What’s the medium/long-term impact of this decision on your startup’s cash? The answer lies in your cash plan.

A cash plan reveals your “real” funding needs

Are you preparing yourself to raise funds? Great. But how much money will you ask?

Simply letting your intuition define “$500k”, “$1MM” (or any other amount) is a bad place to start.

Raise less money than you need and you’ll just postpone the “empty pockets” tragic moment; Raise a ton of unnecessary money and you’ll spoil your execution—by increasing the burn rate—as well as your ownership—by giving away too many shares to investors.

A cash plan makes you confident in front of investors

Investors don’t want to give your their cash; they want to partner with you, in order to multiply it.

So, If you want to win investors’ hearts, you must show them you’re diligent about each cent, and that you have a winning allocation strategy.

With a solid cash plan, questions such as: “How much money do you need?”, “Why do you need it for?”, “How’ll allocate the money?” will be easy for you to answer.

A cash plan gives you more control over your execution

Finally, your cash plan is a powerful tool to help you control your outflows.

In the early days, it’s too tempting to burn more money than you’ve planned. That’s why it’s so important to count on a framework that tells you whether you’re on track or not.

By comparing your planned vs. real outflows, you’ll have time to correct the course, before it’s too late

The 10 Pieces Of Your Cash Plan

The cash plan I’m providing you with in this post is composed of 9 key elements. These elements will help you to easily assess your cash context and make the right decisions about it.

1. Available Cash

It’s the amount of cash your startup has, right now.

Pretty straightforward, right? Not really.

A common mistake you should avoid is to consider as available cash some resources that are actually not available (e.g., money promised by someone, non-committed credit lines, estimated revenue). However, these “likely-to-be-available” resources don’t count as available cash.

Another mistake is not specifying an amount of cash for your startup. Choosing to “flexibly invest your personal money, whenever you feel it’s the time” is a harmful strategy and I tell you why in this post.

2. Validation Costs

Since my cash plan is focused on early-stage startups, I categorized the costs into “validation costs” and “operation costs” (this is definitely not a categorization you’ll see in the “classic” financial reports).

The “validation costs” refer to items directly related to the validation process (i.e., the build-test-learn cycles). Among these items, you have costs related to developers, customer interviews, software/services needed for the validation process, and so on.

3. Operation Costs

The “operation costs” are items not involved directly in the validation process. That means they’re items related to keeping the business running. Examples: rental, insurance, accountant, etc.

4. Cash Burn Rate

The Cash Burn Rate is the average amount of cash your startup spends (burns) per month.

Example of cash burn rate metric and composition, as presented in the Cash Plan Excel model.

For instance, if you’re spending $120,000 in the next 12 months, your cash burn rate is $10,000 per month (120,000 / 12).

More about the cash burn rate in this post.

5. Cash Runway

The Cash Runway is the amount of time (in months) your startup can survive, considering its current cash and its cash burn rate.

For instance, if your startup’s available cash is $80,000, and your cash burn rate is $10,000/month, your cash runway is 8 months (80,000 / 10,000).

More about the cash runway in this post.

6. Target Runway

As you probably presumed, your target runway represents your vision of the ideal runway for your startup. For instance, your startup may have a cash runway of 8 months, but you’re targeting 12 months. By defining the target runway in your Cash Plan, you’ll become aware of the gap to get there—gap that you may close by funding or reducing your burn rate.

7. Cycle’s Average Burn

The Cycle’s Average Burn is at the core of your job in running your startup lean. This metric shows you how much you’re spending on average per cycle (build-measure-learn) you run.

The lower the cost of your cycle the better—since it means you can run more cycles and, consequently, you have more chances to reach the product-market fit.

More about the Cycle’s Average Cost metric in this post.

8. Cycle’s Average Time

Your cash plan also allows you to estimate your Cycle’s Average Time—which is the average time it takes for your startup to run a build-measure-learn cycle.

P.S.: Your Cycle’s Average Time directly influences your Cycle’s Average Burn.

More about the Cycle’s Average Time metric in this post.

9. The Funding Needs

It’s the amount of money you need to raise, based on your available cash, cash burn rate, and target runway.

But more than just a static picture, your cash plan will also update your funding needs accordingly to any changes you make to your strategy.

That means, if you reduce your validation costs, you’ll need to raise less money. The same happens if you reduce your validation times, as well as your operation costs.

10. The Cash Flow Forecast

It’s a visual representation of your future monthly inflows, outflows, and cash balances.

Cash flow forecast screenshot from the cash plan Excel model

Based on your cash flow forecast, you’ll better understand how your cash assumptions are gradually impacting your cash metrics.

What About The Revenue?

At this point, you already know that leading a startup—especially in the early stage—is full of risks. It’s a fact that most startups fail, and those that succeed usually demand several iterations before reaching success.

Hence, while your startup hasn’t achieved traction, you shouldn’t estimate any revenue in your cash plan. This will help you be more conservative about your cash, and play under the worst-case scenario.

Once you achieve the product-market fit—and there is clear traction—the usual Pro-forma statements will make more sense.

The Cash Plan And The Lean Startup Methodology

At this point, I want to highlight probably the biggest difference between the model I provide in this post and the usual financial reports you might have seen. While I was building this model, I wanted to be sure that it incorporated the main logic of the Lean Startup Methodology.

And to do that, I had to come up with a way of considering the cycle’s costs as well as the cycle’s times to influence the final result. Here it is:

Editable cells of the planned and default validation costs from the Cash Plan Excel model.

So, that means your assumptions for the validation costs and times, should be considered to form your cash flow forecast, as well as to reflect in your cash metrics.

This allows you to match your expectations about monthly recurrent costs and costs coming from the cadence of your validation process. Also, you’ll be able to simulate the impact of any changes in your cycle’s assumptions (e.g., reducing the amount of time you spend to build your MVP) in your cash report.

How To Use Your Startup’s Cash Plan

1) Download my free Excel model.

2) Include in the model all the items coming from your allocation strategy, i.e., available cash, secured funding, validation costs, non-validation costs, etc. But, don’t worry if the items are not crystal clear, yet. The more you interact with the model—and the more you understand about your startup—the more you’ll master your cash plan components.

Cash Plan, with the inputs panel section highlighted

3) Check out your startup’s cash flow forecast, so you capture the essence of how the plan generates the numbers based on your info.

Cash Plan, with the cash flow forecast section highlighted

4) Take a look at your startup’s cash metrics. Cash burn rate, cash runway, cycle’s average cost and cycle’s average time, and more.

Cash Plan, with the cash metrics section highlighted

5) Identify your priorities regarding your cash. Is there a lack of funds? How much? What’s your strategy to cover that gap? Reducing your costs? Raising money?

6) Use your cash plan as a “living document” and, therefore, constantly update it.

7) Keep your cash plan with you while you execute, so you can compare what’s happening vs. what you’ve expected to happen with your cash (and correct any inconsistencies, of course).

Questions about your startup’s cash plan or how to fill it in?
Drop me a message here 👇

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