Build a Cashflow Early Warning System

This guide explains how to build a simple cashflow early warning system using Model Reef. The aim is to highlight upcoming periods where cash may fall below a safe threshold, so that you can act well in advance.

Model Reef does not currently send automated alerts. Instead, you design dashboards and reports that make upcoming cash risks obvious whenever you review the model.

Before you start

You should have:

• A complete three statement model with realistic working capital timing.

• Debt and equity flows modelled if funding is part of the story.

• A view on what constitutes a safe minimum cash balance for your organisation.

If you do not yet have working capital and funding structured, see:

• Build a Working Capital Model

• Build a Capital Structure Model

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What you will build

• A dashboard focussed on cash, net debt and funding.

• Simple rules of thumb for minimum cash and buffer levels.

• A review process that uses the dashboard as an early warning tool.

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1

Define your cash safety thresholds

Decide on:

• A hard minimum cash level below which you never want to fall.

• A soft warning threshold that indicates rising risk.

For example:

• Hard minimum: one month of fixed costs.

• Warning threshold: three months of fixed costs.

Translate these levels into currency amounts using your model.

2

Build cash focussed charts

In your dashboard:

• Create a line chart for closing cash balance over the full forecast horizon.

• If relevant, create a separate line chart for net cash or net debt.

• Optionally, add a chart for monthly or quarterly net cash movement.

These visuals will form the heart of your early warning view.

3

Add reference lines or visual cues for thresholds

Depending on your charting options, you may:

• Add horizontal reference lines for the warning and hard minimum thresholds.

• Or, if that is not available, annotate charts with text or colour coding to indicate approximate levels at which risk increases.

The goal is to make it visually obvious when projected cash dips into the warning zone.

4

Integrate Change in Net Working Capital, capex and financing

To understand why cash is moving the way it is:

• Add charts or tables showing:

  • Change in Net Working Capital from the Cash Waterfall.

  • Capex by period.

  • Debt drawdowns and repayments.

• Place these near the main cash charts so that you can quickly see whether cash stress is driven by:

  • Operating performance.

  • Working capital swings.

  • Investment decisions.

  • Financing structure.

This helps you identify appropriate mitigation actions.

5

Test different scenarios for cash risk

Use separate models to test:

• Base Case.

• Downside or stress case.

• Delayed funding or reduced financing availability.

For each scenario, review the cash early warning dashboard and note:

• Earliest period when cash approaches the warning threshold.

• Lowest cash point and its timing.

This gives a range of possible outcomes rather than a single path.

6

Build a review cadence around the dashboard

A cashflow early warning system is only effective if it is used regularly. Define a cadence, for example:

• Monthly or fortnightly for early stage companies.

• Quarterly for more stable organisations.

At each review:

• Refresh actuals and update forecasts.

• Check the cash dashboard.

• Document any upcoming periods where cash approaches thresholds.

• Agree actions if risk is rising, for example cost control or funding discussions.

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Check your work

• Cash and net debt charts clearly show risk periods.

• Thresholds are visible and grounded in realistic needs.

• The dashboard explains both the presence of risk and its causes.

• The review cadence is agreed and maintained by the team.

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Troubleshooting

Cash drops below threshold unexpectedly

Check whether recent assumption changes or actuals imports have significantly altered working capital, capex or revenue patterns.

Thresholds feel arbitrary

Base them on concrete measures such as fixed cost run rate, committed payments or lender covenants.

Dashboard is rarely used

Integrate it into regular finance or leadership meetings so that it becomes part of the standard process.

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Related guides

• Inventory Replenishment Cycles

• Financing Cashflow

• Investing Cashflow

• Editing Frequency