Cash Is King – Why Cash Flow Forecasts Determine Startup Success or Failure

In the startup world, the vision is often grand, the energy boundless – but liquidity is limited. As a Business Angel, I’ve accompanied many founders over the years who started with brilliant ideas but failed due to a simple, often underestimated issue: cash flow. Profitability ≠ Liquidity A common misconception among founders is: “We’re profitable, so we’re doing fine.” But profitability doesn’t automatically mean there’s enough money in the bank to pay the bills. A startup can show profits on paper and still be insolvent – for example, if customers pay late, if large investments have been made in inventory or equipment, or if ongoing costs eat up liquidity. Especially in the early stages of a company, cash flow is often fragile. Income is irregular, while expenses are constant. Without forward-looking planning, even a great business idea and a positive balance sheet can lead to insolvency. Cash Flow Forecasts: Early Warning System and Steering Tool A good cash flow forecast is more than just an Excel spreadsheet – it’s the navigation system for entrepreneurial decisions. It shows when money comes in, where it comes from, and where it goes. This allows liquidity bottlenecks to be identified and avoided early. Two Methods of Cash Flow Forecasting The tool LivePlan recommends two common methods: - Direct Method: Income minus expenses. Simple, intuitive, and especially suitable for startups with manageable transactions. - Indirect Method: Starts with profit and adjusts for non-cash items like depreciation or outstanding invoices. This method is more complex but particularly helpful for fast-growing companies with many transactions. Both methods are valid – what matters is that founders create a forecast at all and update it regularly. A one-time plan isn’t enough: markets change, customer behavior fluctuates, and external factors like interest rates or geopolitical developments directly impact liquidity.

Modern Tools: AI, Scenario Planning, and Real-Time Data Digitalization has revolutionized cash flow management. Modern tools like LivePlan, Fathom, or Float offer much more than spreadsheets: - AI-Powered Suggestions: Tools detect patterns in income and expenses and automatically suggest categories or trends. - Scenario Planning: “What if…?” – Founders can simulate different future scenarios, such as delayed funding rounds, revenue drops, or sudden cost increases. - Integration with Accounting Software: Real-time data from tools like Xero, QuickBooks, or DATEV flows directly into the forecast – saving time and increasing accuracy. Especially in volatile markets – like those we’re experiencing in 2025 – it’s essential to play through different scenarios. The ability to react quickly to changes determines a startup’s survival. Cash Flow Competence as an Investment Criterion As a Business Angel, I don’t just look at the pitch deck or the vision – I ask: - How well does the team understand its numbers? - Is there a reliable cash flow forecast? - How are outstanding receivables managed? - How flexible is the business model in case of liquidity shortages? Startups that excel here not only have better chances of securing funding – they’re also more successful in the long run. Because investors don’t just invest in ideas, but in the ability to implement them sustainably. And that requires solid financial management. Case Study: From Cash Crunch to Scaling An example from my own experience: A young SaaS startup had a strong product, its first paying customers, and a motivated team. But liquidity was tight – invoices were paid late, and there were no reserves. The founders had no cash flow forecast and relied on gut feeling. After an intensive workshop on liquidity planning and the introduction of a scenario analysis tool, things changed: The team identified potential bottlenecks, planned payment targets, and negotiated with suppliers. Within six months, the startup was not only stable but ready for the next funding round. Liquidity as a Strategic Success Factor Cash flow management isn’t a tedious necessity – it’s a strategic success factor. Those who manage their liquidity well can: - Grow boldly: Make investments, enter new markets, hire talent. - Handle crises confidently: Respond to revenue drops or external shocks. - Build trust: With investors, banks, and partners. It’s not just about control – it’s about shaping the future. A good forecast reveals not only risks but also opportunities – such as the best time to expand or the possibility of freeing up capital short-term. Tips for Founders - Start early: Cash flow forecasts should be part of business planning from day one. - Update regularly: At least monthly, ideally weekly. - Use tools: Automation saves time and improves accuracy. - Play through scenarios: What happens with +20% revenue? What about -30%? - Communicate openly: With investors, banks, and team members. Conclusion: Cash Isn’t Everything – But Without Cash, Everything Is Nothing Founders should learn early that liquidity isn’t just a financial issue – it’s a strategic one. Those who know their numbers can not only survive but shape their future. Cash flow forecasts are the key tool – they turn visions into reality. In a world where ideas grow fast, markets change rapidly, and capital isn’t unlimited, one truth holds stronger than ever: Cash is king.