Monday, April 12, 2010

Tracking Cashflow (for Non-Accountants)

One of the most important things an early-stage startup must do is track cashflow (see my previous post My Top 10 CEO Lessons).  But for a variety of reasons, many startups do this poorly, spend too much time doing it, or don't do it at all.

Because many entrepreneurs are not trained in accounting (nor do they want to be), the two most common questions I get are:
  1. Is there an easy way to track cash without having to be an accountant or spending large amounts of time learning QuickBooks (or the equivalent) short of hiring an accountant?
  2. I use accounting software, but the standard reports don't really help and looking at my bank balance doesn't help me with outstanding checks.  Is there a better way to get a forward projection of my cash?
Before I go any further, let me first clearly state that in my opinion, if you are running a serious business, you should at a minimum be tracking accounts using QuickBooks or the equivalent.  This goes triple if you've taken "friends and family" money in any way, shape, or form.  If you can't or don't want to do this yourself, then spend the few dollars a month it takes to hire a competent bookkeeper.  You have a fiduciary responsibility to your investors to do so.

In any event, to help our clients, I've developed a simple cash tracking spreadsheet in Excel that you can download for free here from my company's website.  I recommend tracking cash weekly.

Disclaimer:  This spreadsheet is meant to be simple.  There are no macros, automated routines, or fancy error-checking routines built in.  If you insert or delete cells, be sure you haven't messed up any formulas.  Use it at your own risk.

Additional tips for maintaining control over cash for an early stage startup:
  • Maintain a separate bank account for the business - Its virtually impossible to maintain control over cash when it's co-mingled with a founder's personal bank account.
  • Limit the number of company credit cards to just one (and preferably zero) - Credit cards are a recipe for runaway spending.  The more cards, the tougher it is to maintain control.  If you must have a credit card (some services require submitting a credit card for auto-billing) have just one.  It's better to have auto-payments done via online bill pay.  If its a convenience issue, reimburse personal credit card use via an expense report system.
  • Require employees to submit expense reports for company expenses that they pay for - See above.  You'd be amazed at how much more careful people are with the company's money when reimbursements are subject to approval.
  • Anti-fraud control #1:  Dual check approvals - Have the person who initiates a check, online bill pay, or wire be different from the person who approves it.  If there is only one person, then it should be the CEO/founder.
  • Anti-fraud control #2: Dual bank deposits - Have the person who receives checks be different from the person who deposits them in the bank.  If there is only one person, then it should be the CEO/founder.
Startups die when the cash runs out.  It's worth the effort to track it so you don't get surprised.  Know your cash.


  1. Great article. This is the first time I've ever heard of your Anti-fraud Control #2, Dual Bank Deposits protocol. Can you explain why this is beneficial? What does it protect you from?

  2. If the person who receives the check is the same as the depositer, one fraud scenario is that the receiver "fails" to record receipt of the check, endorses it over to themselves, and cashes it.

    In general, good accounting controls call for separating employees responsible for recording transactions from having custody of the asset. This is obviously tougher to do in a startup which may not have enough people to do this.