Profitable companies fail on cash. Earnings are an opinion arrived at through accruals; cash is a\nbalance you either have on the day or do not.
\nThe indirect method — net income adjusted for non-cash items — is right for reporting and nearly\nuseless for operating. Build a direct forecast of receipts and disbursements by week, from actual\nexpected timing.
\nThirteen weeks is the working horizon: long enough to act, short enough to be accurate. Roll it\nweekly and compare last week's forecast against what happened. A forecast never checked against\noutturn does not improve, and its errors are the most useful information it produces.
\nModel timing, not just amount. A receipt that arrives four days late is the same money and a\ndifferent liquidity position.
\nRunway is cash divided by net burn, but the useful version is scenario-based: the plan, a downside\nwhere revenue underperforms, and the case where a large receivable slips.
\nKnow your decision points in advance — the date by which a raise must start, the date a cost\nreduction must be committed to take effect in time. Decision dates always precede the cash-out date,\noften by more than people assume, and discovering that late removes the good options.
\nCash is trapped in the cycle between paying for inputs and being paid for output:
\noperations:supply-chain-and-logistics.A week off the cycle is permanent working capital released, and it costs nothing in interest.
\nConcentration in one bank is a single point of failure, as depositors have periodically rediscovered.\nSpread operating balances against counterparty limits, and hold reserves in instruments whose\nmaturity matches when the money is needed.
\nDo not reach for yield with money you have a date for. The return on operating cash is not worth the\nliquidity risk, and treasury losses of this kind are always described afterwards as conservative\ninvestments.
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