---
title: Cash Flow and Financial Controls
summary: This module installs the five financial controls every operator business needs to stay financially safe.
est_minutes: 18
sort: 4
---

Profitable operator businesses run out of cash all the time. That sentence confuses most operators. By the end of this module you'll know why it's true, and you'll have built the 5 financial controls that prevent it from happening to you.

**P&L vs Cash Flow**

A P&L statement says: "Last quarter we made $80,000 in profit." Sounds great.

Cash flow says: "Last quarter we collected $220,000, paid $250,000, and our bank balance dropped $30,000."

Both are true. The P&L records revenue when earned (which can be 30 to 60 days before cash arrives). It records expenses when incurred. The cash flow records when money actually moved.

For an operator business with 30-day invoicing and 45-day payment cycles, the gap between P&L and cash is enormous. You can have your most profitable month on paper and still need to skip payroll for yourself.

**P&L answers "did we make money?" Cash flow answers "can we pay payroll on Friday?"**

Both matter. Most operators only watch P&L. That's why profitable businesses run out of cash.

**The 13-Week Cash Forecast**

The 13-week cash forecast is the single most useful financial document for an operator business.

13 weeks = 91 days. Quarter-length. Enough to see real seasonality. Short enough to forecast accurately.

The structure: each column is a week. Each row is a cash item. Top half = cash in. Bottom half = cash out. Bottom row = ending cash balance for that week.

Lay out one column per week across all 13 weeks, with the following rows running top to bottom:

- Opening cash
- Customer A invoice paid
- Customer B invoice paid (and a row for each additional customer)
- **Total cash in**
- Payroll
- Rent
- Software
- Vendors (and a row for each additional cost item)
- **Total cash out**
- **Ending cash**

The whole forecast fits on one screen. Updated every Friday in 15 minutes, you only update what's changed.

Three things become visible the moment you have this forecast:

1. **Tight weeks.** Specific weeks where cash gets close to zero (or negative). You can act ON those weeks, weeks BEFORE they arrive.
2. **Customer payment patterns.** Customer X always pays on day 32, not day 30. That 2-day shift across 20 customers is $40K of float.
3. **Vendor pile-up.** Three vendors all charge on the 1st. Maybe you negotiate 1 to shift to the 15th.

Once you have this forecast, you have leverage on every cash decision. Without it, every cash decision is gut.

**The Monthly Operating Review (MOR)**

The MOR is a 90-minute meeting on the 5th of every month. Attendees: operator + finance owner + revenue lead + delivery lead.

The agenda is fixed:

1. **Last month's results (15 min)** — revenue, margin, cash position. Variance from plan.
2. **This month's forecast (15 min)** — what we expect, where risk is.
3. **Pipeline health (15 min)** — deals in flight, deals closed, retention status.
4. **Cash forecast walkthrough (15 min)** — the 13-week forecast, anything tight.
5. **Strategic decisions (20 min)** — anything financial that needs a decision (pricing, hiring trigger, vendor renewal, etc.).
6. **Action items + owners (10 min)** — what's happening before next MOR.

The output: a 1-page MOR summary that goes to the team and the operator.

**The MOR is the single most important meeting in the operating cadence (Module 3.7).** Without it, financial decisions get made off-cycle, reactively, in slack messages between people who don't have visibility.

**Decision-Grade P&L**

Most operator businesses have a P&L. Fewer have a decision-grade P&L.

The difference:

**Year-end snapshot P&L** — what your accountant produces. Single column. Annual totals. Useful for taxes, useless for operating.

**Decision-grade P&L** — 12 monthly columns. Segmented by service line / revenue stream. Customer-level margin where it matters. Trend lines visible.

A decision-grade P&L answers questions a snapshot can't:

- Which service line is growing? Shrinking?
- Which months have margin issues vs revenue issues?
- Is the trend accelerating or decelerating?
- Where did costs grow faster than revenue?

You can build this from any accounting system (QuickBooks, Xero, Wave). The data is there. Most operators just don't pull it monthly. The MOR forces the pull.

**Customer Margin Reporting**

Module 2.3 introduced cost-to-deliver. Module 3.4 makes it operational, running customer margin reporting monthly, not as a one-time exercise.

For each customer in your top 10 by revenue, track these columns:

- Customer
- Annual revenue
- Direct cost
- Allocated overhead
- Contribution margin
- Effective hourly rate

Sort by margin. The bottom 2 to 3 customers are your action list:

- Renegotiate scope or price
- Move them out of premium tier into a smaller tier
- Stop pursuing more like them
- In rare cases, exit the engagement

Most operators discover they have at least 1 customer at negative margin. The customer feels valuable because revenue is high, but the actual profit is negative once full cost is allocated. The customer is paying you to lose money.

Running this report monthly (as part of the MOR) prevents the slow drift into the trap.

**Trigger Thresholds**

Five thresholds every operator business should set:

1. **Minimum cash balance.** Below this number, you stop discretionary spending. Typical target: 3 months of operating expenses.
2. **Hiring trigger MRR.** A specific MRR number that, once hit and held for 2 consecutive months, fires the next hire from the Module 3.3 plan.
3. **Pricing review trigger.** A specific contribution margin floor (e.g., 45%). Drop below for 2 months, pricing gets re-examined.
4. **Customer concentration threshold.** Maximum % of revenue any single customer can represent (e.g., 25%). Above this, expansion is risky.
5. **AR aging threshold.** Maximum days outstanding before collection escalates (e.g., 45 days = call, 60 days = formal collection process).

Without thresholds, decisions get made on feel. With thresholds, decisions become automatic.

**What To Do Right Now**

Four things:

1. **Build the 13-Week Cash Forecast.** Populate with your real numbers. Update every Friday. Section A of the workbook.

2. **Schedule the Monthly Operating Review** for the 5th of every month for the next 12 months. Section B.

3. **Run the Customer Margin Report** on your top 10. Section C. Be ready for the discovery that one or two customers are at negative margin.

4. **Set your 5 Trigger Thresholds.** Section D. Write the numbers. Calendar the check.

Take the quiz.

I'll see you in Module 3.5, Tech, Tools & Automation, where we make the operating cadence you're building self-running where possible.
