CMNS2700 Chap.5 Finance, Cash Flow and Funding
Finance, Cash Flow and Funding
Founder finance is about decisions, timing and survival rather than abstract accounting. This chapter separates profit from cash movement, classifies fixed, variable, one-off and hidden costs, and shows how deposits and milestone payments reduce project exposure. It also compares self-funding, grants, debt, crowdfunding and equity through amount, timing, repayment, ownership and control.
Every worked number is recomputed from printed inputs.
What this chapter covers
- 01
Profit and loss
- 02
Cash movement
- 03
Cost structures
- 04
Pricing hidden effort
- 05
Milestone payments
- 06
Funding tradeoffs
Worked example · free
Profit without cash
- +1Profit is $15,000 minus $10,000, which equals $5,000.
- +1Cash movement is $3,000 minus $10,000, which equals negative $7,000.
- +2The timing gap requires collection and payment planning, not denial of the profit calculation.
Key terms
- Profit
- Revenue minus expenses over a period, showing economic performance on the stated basis.
- Cash flow
- Money entering and leaving the venture, with timing that may differ from recorded revenue and expenses.
- Fixed cost
- A recurring cost that continues across ordinary changes in project activity.
- Variable cost
- A cost that changes with the number, scale or requirements of projects.
- Equity funding
- Capital received in exchange for part ownership and investor involvement rather than scheduled loan repayment.
Finance, Cash Flow and Funding FAQ
How can a profitable venture run out of cash?
Revenue may be recorded before customers pay, while wages, contractors, equipment and other bills are due earlier. Profit measures revenue minus expense; cash movement measures receipts minus payments. A venture can show positive profit and negative current cash movement at the same time.
Why use deposits and milestone payments?
They align receipts more closely with production costs and reduce the amount a small venture must fund before completion. The payment schedule should total the quoted fee, correspond to genuine delivery events and be explained clearly in the contract and cash forecast.
How should I compare funding sources?
Start with the amount, timing and purpose of funds. Then compare repayment obligations, ownership and control, reporting burden, eligibility, risk and the venture's stage of evidence. Funding should solve a defined constraint rather than substitute for customer demand or a workable model.
Why can a profitable venture still run out of cash?
Profit records revenue earned minus expenses incurred for a period, while cash flow records money actually received and paid. Timing creates the gap. A venture may complete billable work and recognise revenue before the customer pays, yet wages, contractors, subscriptions and tax obligations can fall due immediately. Growth can make this worse if each new project requires production spending before collection.
Build a simple timeline showing opening cash, expected receipts, required payments and closing cash by period. Then test delayed payment, weak sales and an unexpected cost. The point is not merely to calculate two totals; it is to identify when the venture needs a payment term, reserve, staged delivery or funding response.
How should finance evidence change a funding recommendation?
Connect the source of funds to a defined use, timing and evidence stage. Early customer uncertainty may favour a small bootstrap test or pre-sale because a large fixed obligation would amplify an unverified model. Predictable contracted receipts may support a different choice, while a scalable opportunity with substantial development needs may make ownership trade-offs relevant.
Compare repayment, control, eligibility, reporting, cost and downside rather than ranking sources by prestige. State which assumption the funding enables the venture to test and what milestone must occur before the next commitment. If the operating model cannot explain how value, revenue and cash collection connect, external finance postpones the problem instead of resolving it.
Assessment move
Recompute each course case twice: first as revenue minus expenses and then as cash received minus cash paid. Build a cost table that includes unpaid pitching, revisions and administration. For funding questions, use the same five headings every time: need, timing, repayment, ownership and evidence stage. End with a staged recommendation rather than a prestige ranking.
Create a three-period cash schedule and move one receipt later without changing profit; explain the operational consequence. Then classify costs as fixed, variable or founder time and identify which assumption drives each. Compare two funding paths against a precise milestone, showing what happens if the milestone is missed.
Always finish calculations with a decision sentence, because a correct number without interpretation does not guide the venture. Conduct a sensitivity pass on price, volume and payment delay separately so that you can identify which assumption threatens viability and which response belongs in operations rather than finance. Check every unit and timing label before interpreting totals.
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