How much cash does a year need before it is safe, not just funded?
600,000 in the bank, 90,000 a month going out and revenue growing 5% a month. The sheet says the year needs 570,403. Across 20,000 futures the 600,000 covers it in 51 in 100 runs, and 95% odds of not running out takes 810,000.
Finance Starter Monte Carlo Pro engine
After you install, this is the model to open.
How much cash gives 95% odds of not running out?
- In your spreadsheet, click the Sortia icon in the strip of icons down the right-hand edge. No strip? Click the arrow at the bottom-right to open it. You can also use Extensions, then Sortia, then Open Sortia.
- Click Start from a template and put that name in the search box.
- Pick the card with that name and click Load this template. It arrives on a new tab with real numbers already in it.
This one runs on a Pro engine, and every free install includes five full-quality runs on your own numbers, shared across all five Pro engines rather than five for each. After that, Pro is $199/year.
What it does
A company with 600,000 in the bank, 40,000 a month coming in and 90,000 a month going out, with revenue growing 5% a month and costs 2%. The sheet runs twelve months and finds the deepest point of the cumulative hole, which is the cash the year needs. As typed the business needs 570,403 to stay above zero all year, ends the year with 29,597 in hand, and the 600,000 covers it with room to spare.
That is one set of guesses. Click Run with this month's revenue, its growth and this month's costs as three-point estimates. The seed is set to 7 and the trials to 20,000 so your first run reproduces these figures exactly. Cash needed comes back with a median of 596,297 and a mean of 594,134, so the sheet's 570,403 sits below the middle of the range, and the 600,000 on hand covers the year in 51 in 100 runs.
Read the same fact from the other output: the lowest cash balance of the year is at or below zero in 49 in 100 runs. A plan the sheet calls funded with room to spare is a coin toss. The cash that gives 95% odds of not running out is the ninety-fifth percentile of cash needed, 806,516, so the answer is 810,000: that much on hand covers the year in 95 in 100 runs, and 800,000 covers it in 94 in 100.
The tornado puts this month's costs first at 0.64, carrying 43% of the spread, and revenue growth second at -0.53. Second run: change Cash on hand today to 810,000 and rerun. The lowest balance of the year stays at or above zero in 95 in 100 runs, which is the same count read from the balance side, and the cash needed does not move at all, because what the year needs has nothing to do with what you start with.
What the model cannot tell you: growth and costs are each drawn once and held for the whole year, so a trial is a steady company rather than one that has a bad quarter and recovers; nobody raises money, cuts costs or chases receivables when the balance drops, which real companies do; and the grid stops at month twelve, so a company still burning in month twelve is counted as funded.
To make it yours, put in your own opening cash, this month's revenue and costs, and the growth you would defend, and set the same three ranges on the draws in the Risk Analysis panel.
The model
It arrives on a tab called Template: Cash With 95% Odds, carrying these columns:
- Cash on hand today ($)
- 600000
with the model computed beside the data:
| Cash needed to stay above zero all year ($) | 570,403 |
| Lowest cash balance in the year ($) | 29,597 |
| Cash at month 12 ($) | 29,597 |
Once it is in your sheet
- The model arrives with real numbers in it and runs as it stands, so you can press the button first and understand it second.
- Change the numbers to yours. The sheet marks which cells are inputs and which hold formulas, and most labels carry a note explaining the row.
- Press the run button at the bottom of the panel. It is labeled for the tool you are in, and the result lands on its own tab, with a written reading of it beside the figures.
Never used Google Sheets? Start here goes the whole way, in seven steps, and assumes nothing.
Next question
- Is your price a plan, or a coin toss against the margin target?What price keeps 80% odds of hitting the margin target?
- What does the monthly transfer have to be for the goal to hold nine times in ten?What monthly saving gives 90% odds of hitting the goal on time?
- A $10,000 product launch with an uncertain price, an uncertain quantity and an uncertain unit cost. One recalculation shows one NPV and tells you nothing. Twenty thousand show a mean of $24,879, a median of $24,291 and a positive NPV in 99.6% of them.What are the odds this project clears a positive NPV?
- When does your startup actually run out of money?When Does the Startup Run Out of Cash?
- What is the business really worth?What Is the Business Worth, as a Range?
- After this round, what do you actually walk away with?What Do the Founders Keep After the Round and the Exit?
Every model like this one, and the method behind them: Monte Carlo simulation.