The Bare Essentials: The Cash Flow Napkin

A simple sketch to get real about your business money.

(Part 7 of the This Is Not An MBA Business Plan series.)

Salma* was starting a beverage company. I had emailed her a cash flow template to review and fill in before our meeting. But during our initial conversation, she admitted, “I’m not good with math or numbers. The template feels overwhelming.”

I reassured her, “The template does all the adding and subtracting for you.”

She exhaled. “I just don’t get it.”

“Okay,” I said. “Let’s simplify. If we were in a café and I asked you to do it on a napkin, would you do it?”

“Sure.”

“Great. Grab a pen and a blank piece of paper.”

She did.

From Overwhelm to Napkin Simplicity

“Think of this like a basic monthly budget: money coming in and money leaving your hands,” I explained. “So, how would you write that out?”

“I’d start with money that’s coming in,” Salma said.

“Let’s label that section Money In. And under that?”

“I guess… sales?”

“Close,” I replied. “Write Cash Sales. You may make a sale, but if you don’t get paid that month, it’s not actual money in.”

“Right,” she nodded. “Some clients might pay a month later, especially for big orders.”

“In your first month in September, what do you expect to come in from sales?”

“Not much,” she admitted. “I’m just launching and might not sell anything.”

“Okay, so put 0 in September.”

“Can I do that?”

“Of course. It’s the reality of your business.”

“What else goes in Money In?”

“That’s it,” she said.

“Nope. You’re applying for a loan, right? If you get it, that’s money in.”

“Oh yeah!” she said, now remembering.

“Label that line Cash Injection. You’re giving your business a good dose of money.”

“That’s a weird metaphor,” she laughed, “but I get it.”

“Write the loan amount, $30,000, under Cash Injection. Then total up the section.”

“This actually seems simple,” Salma said, surprised.

What’s Leaving Your Hands

“What’s next?” I asked.

“Money going out,” she replied.

“Exactly. Label that section Money Out. What would you put there?”

“Expenses I expect to pay each month.”

“Good. Write those down. And don’t forget financial expenses—like loan repayments.”

Salma jotted down some items.

“What else?” I pushed.

“That’s it,” she said.

“Remember why you’re applying for a loan? You’re planning to pay for your website and inventory.”

“Oh right!” she realized. “That’s another $20,000.”

“Label that Startup Costs. Then total this section as Total Money Out.”

Salma added it up quickly.

What’s Left Over

“Now,” I continued, “you want to figure out what’s left over. Call this section What’s Left. Under that, write Gain/Loss, which is the difference between Money In and Money Out.”

“Oh, like profit,” Salma said.

“Not quite. Remember, you ‘injected’ money into your business. That’s not earned revenue.

So it’s not profit. That’s why cash flow is not an income statement.”

“There’s that injection thing again,” Salma chuckled.

“So, what’s your gain or loss for the month?”

Salma did the math: “$9,680.”

“Do you have any other money when you start?” I asked.

“No,” she replied. “I’m not putting in any of my own money.”

“If you did, guess where that would go?”

We both said it: “Cash Injection!” and burst out laughing.

“So,” I concluded, “you’re projecting to have $9,680 on hand at the end of September. There’s your first month of cash flow.”

The Cash Flow Napkin Framework

                                                                                        Month 1     Month 2      Month 3,    etc.                                             

MONEY IN

Cash Sales                                                                                

Cash Injection                                                                           

Total Money In                                                           

MONEY OUT

Expenses

Startup costs                                                              

Total Money Out

WHAT’S LEFT

Gain/loss (Money In less Money Out)

Previous balance

Money On-hand

Salma’s September Napkin Cash Flow

                                                                                              Sept                 

MONEY IN

  Cash sales                                                                            0              

  Cash injection                                                         30,000              

Total Money In                                                          30,000                           

MONEY OUT

Expenses

      Insurance                                                                     115                                            

      Cell/internet                                                               120              

      Subscriptions                                                                85                 

      Marketing                                                                         0                             

      Loan repayment                                                            0              

 Startup costs                                                            20,000             

Total Money Out                                                      20,320             

 WHAT’S LEFT                                

Gain/loss (Money In less Money Out)                         9,680            

Previous balance                                                                  0            

Money On-hand                                                         9,680            

When Reality Hits

Then I asked Salma to do the same for October. As she filled it in, she noticed she would have a loss that month. I pointed out that her $9,680 balance from September could absorb October’s $400 loss. But if that pattern kept up—losing money every month—that could quickly become a problem.

We added a new line in Expenses: Owner’s Draw.

“At some point, you’ll need to pay yourself,” I said. “That’s why you’re going into business. The cash flow will show you when and how much you can take out. Most don’t take much—or any—at the beginning. But the question always comes up: how are you covering your living expenses if you're not paying yourself? The answer depends on each person’s situation.”

Salma’s October Cash Flow

                                                                                              Sept                Oct        

MONEY IN

  Cash sales                                                                            0               450

  Cash injection                                                         30,000                    0

Total Money In                                                            30,000              450     

MONEY OUT

 Expenses

     Owner’s draw                                                                    0                    0

     Insurance                                                                       115               115                     

      Cell/internet                                                               120               120

      Subscriptions                                                                85                 85

      Marketing                                                                         0                 230

      Loan repayment                                                            0               300

 Startup costs                                                            20,000              ___

Total Money Out                                                      20,320              850         

WHAT’S LEFT                                

  Gain/loss (Money In less Money Out)                      9,680             (400)

  Previous balance                                                               0           9,680          

Money On-hand                                                         9,680           9,280 

The Lightbulb Moment

After Salma filled in her second month, she looked up and said, “The cash flow is a reality check!”

“Exactly,” I replied. “The numbers prompt you to ask smart questions. What action steps do you need to meet your sales goals? When will you reorder inventory? Will you have the money to do it? When can you afford to start paying yourself?”

Salma now felt confident filling in the full cash flow template because she understood its purpose: preparing for the future.

Final Thoughts: Why This Matters

Here’s a fundamental truth: Cash flow isn’t just about numbers. It’s a navigation tool—a way to plan and make tough decisions throughout your entrepreneurial journey.

As entrepreneurs, we face uncertainty. Anything that reduces that uncertainty helps us, and nothing does that better than understanding the financial story of your business.

Start with a napkin, if you need to.

It’s a new language, and like any language, you get better with practice.

*The name, business, and financials have been altered to maintain client confidentiality.