In Part 2 of this series, I revealed how powerful an interactive, visual cash flow dashboard can be in helping the CEO, lenders and investors understand what’s going on with your Company’s cash flow.
The three tools I have used effectively over the years are:
- A visual, interactive cash flow dashboard
- The Peace of Mind schedule
- The GAAP cash flow statement
We looked at the cash flow dashboard in detail in Part 2.
Now it’s time to talk about item #2 on the list.
The Peace of Mind Schedule
The Peace of Mind schedule was born back when I was a CFO of a nice little company that, unfortunately, had one very nasty cash flow problem.
About a year after I became the CFO, we began negotiating a major restructuring with our primary lender.
One of the challenges in creating the new payment terms was that the business was highly seasonal. Net income was great in certain months. But that’s not how the cash flowed through the business.
I created the Peace of Mind schedule format to help the lender more clearly see the difference between the stronger net income months and how the cash actually flowed, the impact of seasonality on our cash flows, and why we had to maintain some fairly large cash balances at certain times of the year in order to get through the seasonally slower months.
It presented the information to them in a way that made it super easy for them to understand exactly how our cash flow worked and why their previous demands for payment terms were totally unrealistic.
We eventually got the restructuring we wanted and got the repayment terms set at levels we could afford and that we could live up to.
(I wrote a chapter in my book Never Run Out of Cash about the story of how the Peace of Mind Schedule came into existence. I provide a free copy of that chapter on this page.)
The schedule is designed to show twelve months of cash flows next to each other. The first six months are actual results (in the image above).
The schedule helps answer the question “what happened to the cash”. The next six months in the schedule are going to be our projections. The projections are going to help us answer the second question “what’s about to happen to the cash”.
Here’s How the Schedule is Setup
The schedule starts with the beginning cash balance for the month.
In section 1, I bring in a summary version of the income statement.
Here's an important point I'd like you to jot down before we continue.
This is not a sources and uses of cash schedule. This is not a picture of the flow of cash in the door and the flow of cash out the door. That’s a very important point. You want to help people relate to profitability from the income statement as part of showing them each of the key drivers of cash flow for the month.
You don’t want to try to present a cash basis view here. That will defeat the whole purpose of providing education and insight to the users of your monthly financial statements.
In section 2, I bring in your debt service payments. These are the payments you make on loans with the bank or other financial institution who has loaned you money. The amount here is the total payment.
Both principal and interest are included so it is clear how much cash is leaving your business for the purpose of servicing debt. Any borrowings you receive in a particular month would be included in this section.
In section 3, I bring in your capital expenditures. This is the cash you invested in various capital assets during the month.
Section 4 is what makes the schedule so unique and powerful. This part of the schedule is primarily focused on capturing the various “timing differences” created in your income statement by the accrual basis of accounting.
Some of the biggest timing differences in your business will likely be related to accounts receivable, inventory, and accounts payable.
This section helped me teach management and lenders the difference between the revenue number in the income statement and the cash we actually collected during the month. It’s a great education tool.
Shining the Light on Receivables and Inventory
It’s also a great way for you, as the CFO, to get your staff focused on setting targets and goals around how much cash you should be collecting on receivables in any given month.
I have found this to be incredibly effective in getting people focused on collecting receivables (in addition to working the accounts receivable aging reports).
Same thing goes for inventory.
It’s easy for people to lose focus on the amount of inventory the company is actually buying each month. Shine the light on it like this and you find that management starts paying a little closer attention to what’s going on with inventory (since we all know inventory is where lots of dead bodies are buried).
Then the schedule computes the ending cash balance for the month.
All on Two Pages
On two pieces of paper we have captured all the drivers of cash flow.
We will use this same tool to create our cash flow projections for the coming months right next to the actuals. (We’ll talk more about the projections in an upcoming post).
My next post in this series will focus on the third component of your cash flow toolkit – the GAAP cash flow statement.
Note: If you want to learn more about the Peace of Mind Schedule and how to implement it in your business, it’s the focus of my book Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore.

