Ep. 497 — Ryan & Kim: How to Build an Annual Budget That Predicts Your Cash

4 min read

Subscribe: Apple Podcasts · Spotify · YouTube · Amazon Music · iHeartRadio · Pandora · RSS

Episode Summary

Most owners don’t start thinking about next year’s budget until it’s almost next year. That’s the problem. By the time you sit down to build one, the months of groundwork that make it real never happened, so the budget turns into a wish. Kim and I wanted to walk through how we actually do it. Your CPA does your taxes. Your banker watches the line. Nobody is building the one thing that tells you how much cash will be in your checking account next year. Not net income. Not gross profit. Not even Normalized EBITDA, which can read $2 million while your bank account reads $2. We get into building the budget as a closed loop: twelve months of all three statements tied together so tightly nothing can hide, starting from your ownership goals and cascading down through revenue, margins, and working capital. Kim takes the CRO seat and reverse-engineers the revenue number out of the customer journey. I run the chart. The payoff is the bottom right corner of the puzzle: the cash, a year out, predicted within a few hundred dollars.

Watch on YouTube

Top 10 Takeaways

  1. Your net income is not your cash. A real budget predicts the actual dollars in your account.
  2. Begin with what you want. Then pressure-test it against what your team can actually pull off.
  3. Don’t just divide last year by twelve. Take your trailing twelve months, add seasonality, then growth.
  4. Build it as a closed loop. When all three statements tie together, nothing can hide from you.
  5. Break revenue into product lines. Each has its own margin, and the blended number lies to you.
  6. Your accounting system won’t force good numbers. A real model does, and shows you what’s broken.
  7. Go in order: your goals, then revenue, then operations, then your CFO ties it all together.
  8. Make your CRO reverse-engineer the revenue back through the customer journey and real conversion rates.
  9. Working capital is where your cash hides. Receivables, payables, and inventory will drain you dry.
  10. Don’t try to build this yourself. Spend your energy finding the person who owns the model.

Sound Bites

“I’ve never once seen a good, clean set of financials. Not once. Because if you mathematically tie it all together, you can’t hide it.” (@00:31:45) — Ryan Tansom

“If you and I want to help people predict in August of ‘27 how much cash will be in the actual checking account. Not the net income, not the gross profit, not the normalized EBITDA. Actual fiat cash in the checking account.” (@00:42:30) — Ryan Tansom

“Normalized EBITDA is a proxy for cash. Our clients can have $2 million in normalized EBITDA and $2 in the checking account.” (@00:51:00) — Ryan Tansom

“I find it therapeutic to just put all your thoughts on a piece of paper and go, am I insane or not?” (@01:02:45) — Ryan Tansom

“There is groundwork that needs to be done before you get to budget season at each tier. And it needs to be collaborative. They’re not done in silos.” (@01:22:40) — Kimberly Clark

About This Episode

This is a Ryan and Kim teaching episode, the second stop inside Module 4 (Sustainable Financials) after the three-statement model. Ryan runs the financial model and the ownership-goals frame. Kim brings the CRO seat, where the revenue forecast gets reverse-engineered out of the customer journey. It’s the budgeting piece of a connected run: Ep. 492 read the gross margin chart, Eps 493 to 495 built the executive comp plan off normalized net operating income, and the next episode closes the loop with the five-year forecast and the value gap.

Resources Mentioned

  • 90-Day Boardroom Blueprint — Ryan and Pat build the three-statement model and annual budget with owners. — independencebydesign.io/ownership-coaching
  • Ep. 472 — The Only Financial Model You Will Ever Need — the on-screen walkthrough of the Module 4 model Ryan references. — Castos
  • Atomic Habits by James Clear — the “just drive to the gym and show up” idea. — jamesclear.com/atomic-habits

Connections

Graph View