Build the Cash Flow Before the Model
Updated: 7 days ago
How to Build a Start-up, Part 4: The Financials, Author: Simon Rasalingham, 2026
You have a customer, a solution and a business plan. The next step is the financials, and most founders build the wrong spreadsheet first.
They start with the five-year model: revenue curves, a hiring plan, a profit-and-loss forecast that turns positive in year three. It looks rigorous, and it answers a question nobody is asking yet. The question that matters in year one is simpler: how much cash is in the bank, and how long will it last?
So the first financial document you build should be a 12-month cash flow. Then extend it to 24 months. The model comes last.
An early-stage company lives on cash, not profit
Before your first paying customers, you will probably not raise money. Investors buy evidence, and you don't have any yet. That leaves two sources of cash: what you put in yourself, and what customers pay you. Your job is to find paying customers before the first runs out, which means spending as little as possible and knowing where every pound goes.
When I started Medica in 2004 there was no investor. There were ten credit cards, four personal loans, a remortgage and my Diageo shares. The number that decided whether we survived was not profit. It was cash in the bank on Friday.
Profitable companies die of timing
Profit records work done. Cash records money received. In a young company the two can sit months apart, and the company can die in the gap.
At Medica, that gap was one of the biggest risks in the plan. We did the work, invoiced the trust and booked the revenue. Then we waited. Under the Better Payment Practice Code, NHS bodies are expected to pay 95% of undisputed invoices within 30 days, and trusts report against that target every year. In my experience, they never paid within 30 days. Nor is that just my experience: the Health Service Journal has reported that one in four hospital trusts routinely pay suppliers late.
Our costs did not wait. Radiologists were paid every month. So each new contract widened the gap before it made us any richer. Growth consumed cash before it produced it.
A profit forecast would have shown a business doing well. The cash flow showed the truth. As the old accounting saying goes, profit is an opinion; cash is a fact.
Your first financial document is a 12-month cash flow
It should fit on one screen, month by month, in five lines:
Cash at the start of the month
Cash coming in, entered in the month it will actually arrive, not the month you send the invoice
Cash going out: salaries, rent, suppliers, tax, loan repayments
Cash at the end of the month
Runway: how many months that balance lasts at your current rate of spending
Each month, overwrite the forecast with what actually happened. The value is not the forecast; it is the comparison, because that is where you find out which assumptions were wrong while there is still time to act.
One rule if you sell to the NHS or any large public body: whatever the contract says, enter every receipt at 60 or 90 days. If the money arrives sooner, you have a pleasant surprise. If you plan for 30 and it arrives at 90, you have a crisis.
Extend it to 24 months once the first year holds
When twelve months of forecast have held up against reality, extend the cash flow to 24 months.
By then you are projecting from real payment behaviour, real costs and real customers rather than hopes. The second year is where you see whether growth pays for itself or keeps consuming cash, and whether you can reach the next stage on revenue alone or will need outside money to bridge the gap.
That answer tells you whether, and when, you need to raise.
The full model comes last, when you raise
Only once the 24-month cash flow is working, and you are ready to talk to investors, do you need the bigger model: how revenue builds, what it costs, who you hire and when, and the profit-and-loss forecast. Don't build it from scratch. Pillar VC publishes a comprehensive template free as a Google Sheet, designed for early-stage planning and fundraising, and it covers biotech: Pillar VC Financial Model Template
The order matters. The model is what you show an investor. The cash flow is what keeps you alive long enough to have one.
Let AI build the structure, never the numbers
Building these spreadsheets is one of the few start-up jobs where an AI assistant such as Claude is faster and more useful than doing it yourself. Describe the business and it will lay out a cash flow, adapt a template to your sector and write the formulas in minutes.
It will also fill in numbers that look plausible, and plausible is not the same as true.
Every figure has to come from something you can point to: a quote, an invoice, a signed contract, an agreed salary, a payment term you have actually lived through. If a number came from the AI, mark it as an assumption and go and test it. It is the same known-versus-assumed discipline as the business plan in Part 3.
Cash buys the time to find your customers
"Cash is king" is often credited to Pehr Gyllenhammar, then chairman of Volvo, after the 1987 stock market crash. It has outlived the crash because it is the first law of a start-up.
Profit tells you whether the business works in theory.
Cash tells you whether it survives long enough to find out. Manage cash first, and you buy the one thing a start-up cannot get any other way: time to find the customers, and the evidence, that everything else depends on.
Author: Simon Rasalingham, 2026 How to Build a Start-up: the full series
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