Ecom CFO Notebook - cashflow forecasting mechanics (part 2)

Welcome to this issue of Ecom CFO Notebook – a weekly letter for 7–9 figure ecommerce founders and CFOs, sharing my perspective and stories for profitable growth.

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Sam here.

Continuing the series on cash flow forecasting

Last week I laid out the why behind cash flow forecasting. This week: the mechanics.

If you missed last week, link here.

Specifically, who does what and where the data actually comes from.

Many of you know this intuitively. But I find myself explaining this on sales calls over and over. So we created a mental model.

Managing a repetitive process like cash flow forecasting isn't the highest and best use of client’s time. But the confusion sometimes is what the CFO team should be handling, where all the inputs live, or what you're still responsible for.

So let's break down what the cash flow forecasting mechanics are. Three roles. Clear division of labor. No one doing work they shouldn't be doing.

***Quick note before we dive in: I'm framing this for companies doing $10M+ in revenue.

Under $1M? You can probably manage this yourself.

Between $1M and $10M? It depends. If you're ordering infrequently (twice a year, simple terms, one supplier), you might be fine on your own. But if you're ordering inventory monthly or dealing with complex supplier terms, then it makes sense to bring in support.

Once you cross $10M, the time you'd spend managing this forecast is worth more somewhere else in your business.

The three roles

There are three roles in cash flow forecasting. Understanding who does what eliminates most of the confusion.

The Financial Analyst

The analyst pulls all the data together and presents the cash flow forecast based on what the data says. Not what you hope it says. What it actually says.

They manage the whole process: determining whether your accounting is reliable enough to use, coordinating with your controller or accounting firm, troubleshooting data issues.

The analyst can run scenarios if needed, but that's not their primary function. Their job is to represent the facts based on the data sources.

The CFO

The CFO is your strategic sounding board.

They work through what-if scenarios with you. They confirm your maximum cash deficit. They help you develop strategies to improve your cash position. They sanity check your assumptions—usually by stress testing the downside.

You think you're going to hit $2M next quarter? They ask what happens if you only hit $1.5M. You think that new product launch is going to crush? They model what happens if it doesn't.

The CFO's job is to optimize your cash given the goals you've set.

The Client

This is usually the founder or CEO. Could also be your COO or Director of Ops. Could even be your internal CFO if you have one.

You provide the critical inputs that only you know: your purchase orders and revenue forecasts. And you review the forecast to make sure it actually makes sense for your business. The CFO and analyst can support demand planning and revenue forecasting, but this is ultimately the CEO’s responsibility.

Where the data comes from and how it flows

There are two paths for getting transaction data into your cash flow forecast.

Path 1: Good accounting

If your books are current and reliable, we pull data directly from QuickBooks (or whatever accounting software you use) into Google Sheets or Excel.

The connector between the two is usually a tool like Liveflow.

This middleware matters because it automates the flow of transaction data. Every bank payment, every credit card charge, every payout from Amazon or Shopify all flows into the forecast automatically instead of requiring manual entry.

Makes everyone’s life easier.

Path 2: Bad accounting

If we can't rely on your books, we go straight to the source: bank accounts and credit cards.

More manual. Not ideal. But sometimes more accurate than trying to work with financials that haven't been updated in months.

Either way, you're still missing two pieces

Regardless of whether your accounting is good or bad, there are two inputs in addition to the transactions:

1. Purchase orders

Your bank account doesn't know you just placed a $50K order with your supplier. That future obligation needs to be in the forecast, or the forecast is useless.

All of your POs need to live in one place. Not your email inbox. Not WhatsApp. One centralized system.

Because if your POs are scattered across emails, texts, and verbal commitments, there's no way to build an accurate forecast.

If you have multiple suppliers, those suppliers have different payment terms.

One supplier might want 50% upfront, 50% net 60. Another wants 10% deposit on order, 30% when they ship, and the balance when you receive the goods. A new supplier you've never worked with before? They probably want 100% upfront because they don't trust you yet.

We need to know all of this to model when cash actually leaves your account. You know these terms intuitively since you (hopefully) negotiated them, but it's important to model out all these different payment schedules.

2. Revenue forecast

If you're expecting higher sales because you're scaling ad spend or launching a new product, that projected revenue needs to show up in your forecast before the cash actually hits your account.

Your revenue forecast is not the same as your demand forecast.

If you're doing $15M selling coffee mugs with a 90-day supplier lead time, and you want to hit $20M next year by adding pens with a 1-week lead time—your revenue forecast might stay at $20M, but your entire purchasing timeline just changed.

The revenue forecast shapes the big picture. The demand forecast (and resulting purchase orders) shapes when cash actually moves. We need both to build an accurate forecast.

How it works in practice

Once we have all the inputs, the analyst builds the forecast.

This isn't a one-time exercise. The forecast gets updated weekly (or at minimum, monthly) as new data comes in. New POs get placed. Revenue projections change. Supplier payment dates shift.

The CFO works through scenarios with you based on what the forecast is showing. You're looking at your ending cash balance each week for the next 13 weeks. Where's the low point? When does it hit? What needs to change to avoid it?

Your job is to review it and make sure the numbers match reality. If a timing assumption is wrong or something doesn't make sense, speak up. Because if it doesn't make sense to you, the whole exercise is irrelevant.

We're building these forecasts so you can make better decisions, not just so you can feel productive.

Next week

We've covered the who and the how. Next week, we're going deeper into the strategic decisions you can make once these mechanics are in place.

How do you actually use the forecast to model scenarios? What happens if you push that purchase order back two weeks? What if you split a large order into smaller shipments? How much cash should you actually keep on hand?

The forecast becomes a decision-making tool. But only if the mechanics are solid first.

Now that we've covered the foundation, what questions do you have about the decision-making part? Hit reply and let me know. I'll make sure to cover it in the next couple weeks.

— Sam

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2. EcomCFO provides CFO and accounting support for 7-9 figure ecommerce brands - book a brainstorming session with me here