| name | cfm - Cash Flow Management |
| description | Track and optimize cash flow including income, expenses, runway calculation, and burn rate analysis |
| output | {"format":"prose"} |
Cash Flow Management
Overview
Track and optimize cash flow including income, expenses, runway calculation, and burn rate analysis
Steps
Step 1: Map all income sources
Create comprehensive income inventory:
- List all sources of income
- Employment income (salary, wages, bonuses)
- Self-employment/freelance income
- Investment income (dividends, interest, capital gains)
- Rental income
- Other income (side gigs, royalties, etc.)
- For each source document:
- Gross and net amounts
- Frequency (weekly, monthly, quarterly, annual)
- Payment timing (1st of month, 15th, etc.)
- Reliability rating (guaranteed, expected, possible)
- Calculate average monthly income
- Include only reliable income in base calculation
- Note variable/bonus income separately
- Identify income patterns and seasonality
Step 2: Categorize and track all expenses
Build comprehensive expense picture:
- Gather expense data
- Pull bank/credit card statements (3-6 months minimum)
- Review recurring payments and subscriptions
- Include cash spending
- Categorize each expense:
- Fixed essential (rent, loans, insurance)
- Variable essential (groceries, utilities, healthcare)
- Fixed discretionary (subscriptions, memberships)
- Variable discretionary (dining, entertainment, shopping)
- Periodic (annual bills, holidays, maintenance)
- Calculate monthly averages for each category
- Identify spending patterns and anomalies
- Note payment timing and due dates
Step 3: Calculate burn rate
Determine cash consumption rate:
- Calculate gross burn rate
- Sum all monthly expenses
- Include periodic expenses (annual / 12)
- Include irregular expenses (average over period)
- Calculate net burn rate
- Gross burn minus total monthly income
- Positive = depleting cash
- Negative = accumulating cash
- Calculate essential burn rate
- Fixed essential + variable essential only
- Your minimum survival number
- Analyze burn rate trends
- Is it increasing, decreasing, or stable?
- What's driving the trend?
Step 4: Calculate runway
Determine how long cash will last:
- Calculate current cash position
- Cash in checking/savings
- Money market funds
- Other liquid assets
- Do NOT include retirement accounts or illiquid assets
- Calculate standard runway
- Cash position / Net burn rate
- If net burn is negative (cash positive), runway is infinite
- Calculate conservative runway
- Cash position / Gross burn rate
- Assumes zero income
- Calculate emergency runway
- Cash position / Essential burn rate
- How long you can survive in crisis mode
- Determine runway adequacy
- Compare to target (6-12 months recommended)
- Identify gap if any
Step 5: Build cash flow forecast
Project cash position over time:
- Create month-by-month projection
- Start with current cash position
- Add expected income for each month
- Subtract expected expenses for each month
- Include known large expenses (taxes, annual bills)
- Calculate ending cash for each month
- Identify cash flow gaps
- Any months where cash goes negative?
- Any months with dangerously low balances?
- Create scenarios
- Best case: higher income, lower expenses
- Base case: expected income and expenses
- Worst case: lower income, higher expenses
- Identify critical thresholds
- When does cash hit warning level?
- When does cash hit critical level?
Step 6: Identify optimization opportunities
Find ways to improve cash flow:
- Income optimization
- Can any income be accelerated?
- Are there untapped income sources?
- Can payment terms be improved?
- Is there potential for raises/rate increases?
- Expense reduction
- Review discretionary expenses for cuts
- Identify unused subscriptions
- Compare rates for services (insurance, utilities)
- Find alternatives for major expense categories
- Timing optimization
- Align expense timing with income timing
- Negotiate payment dates with creditors
- Use credit strategically (0% offers, payment float)
- Structural improvements
- Consolidate debt to lower payments
- Refinance loans if rates available
- Negotiate recurring contracts
- Prioritize opportunities
- Impact (how much does it improve cash flow?)
- Effort (how hard is it to implement?)
- Speed (how quickly does it help?)
Step 7: Establish cash flow management system
Set up ongoing monitoring and management:
- Select tracking method
- Spreadsheet (manual but flexible)
- Budgeting app (automated but less control)
- Accounting software (for business)
- Set up tracking cadence
- Daily: quick balance check
- Weekly: record and categorize transactions
- Monthly: full review and forecast update
- Define alert thresholds
- Warning level: take action soon
- Critical level: take action immediately
- Create emergency procedures
- What to do if cash drops to warning level
- What to do if cash drops to critical level
- Schedule regular reviews
- Monthly: update forecast, review spending
- Quarterly: review trends, adjust strategy
- Annually: comprehensive cash flow audit
When to Use
- Starting a business or going through startup phase
- Living on variable or irregular income
- Experiencing financial stress or uncertainty
- Planning a major life transition (job change, sabbatical, retirement)
- Managing seasonal income fluctuations
- Determining how long savings will last
- Evaluating whether to take a financial risk
- Building towards financial independence
- Running a project with limited funding
Verification
- All income sources are captured with timing
- All expenses are categorized and totaled
- Burn rate is calculated correctly
- Runway calculation is accurate and realistic
- Forecast includes known future events
- Optimization opportunities are actionable
- Tracking system is set up and being used
