Stress Test Your Cash Flow

Know if you can survive shocks before they hit.

What this recipe is for

Simulating revenue drops, cost increases, or timing shifts to understand how fragile (or resilient) your cash position really is.

What you’ll get

Clear view of worst-case and manageable scenarios

Triggers for preemptive action

Prioritized mitigation tactics

Confidence in decisions under uncertainty

Key inputs

Current cash runway (cash on hand / burn)

Revenue baseline and variability

Fixed and variable cost structure

Receivables/payables timing

Key dependencies (major clients, suppliers)

Core logic

Small shocks cascade if your cash buffer is thin. By modeling downside and upside “what ifs”—e.g., sales dropping 20%, a supplier price hike, delayed payments—you identify the combinations that threaten survival and the levers that buy time or offset risk.

Step-by-step actions

Step 1: Establish your base case

Document current cash runway, revenue, and cost assumptions.

Step 2: Define shock scenarios

Common ones:

Sales drop (e.g., −15%, −30%)

Cost spike (supplier, labor, fulfillment)

Payment delays (receivables slow, payables accelerated)

Combined stress (sales down + costs up)

Step 3: Recalculate runway under each

Adjust burn and inflow assumptions; compute new runway.

Runway = Cash / (Adjusted Burn)

Step 4: Identify failure points

Which scenario pushes runway below critical thresholds (e.g., <3 months)?

Which combination collapses liquidity fastest?

Step 5: Build mitigation playbook

For each high-risk scenario, define:

Fast actions (cut discretionary spend, pause acquisition)

Revenue cushions (accelerate collections, temporary offers)

Cost buffers (defer non-essential spend, renegotiate terms)

Backup options (bridge financing, reserves)

Step 6: Set early warning triggers

Monitor leading indicators tied to each scenario:

Sales slipping by X% over Y weeks

Cost components rising beyond forecast

Receivables aging increasing

Decision thresholds / guardrails

Runway drops below 3 months in a stress test → Activate contingency plan (cost cuts, liquidity options).

Multiple shocks overlap (e.g., revenue down + payables shortened) → Treat as high-alert; stop expansion moves.

Early indicators hit warning levels → Execute corresponding pre-planned mitigation (e.g., tighten collections if receivables lag).

Examples

E-commerce: A 25% dip in sales combined with a 10% increase in shipping costs reduces runway from 6 to 2.5 months—trigger immediate markdown strategy to clear inventory and a temporary marketing pivot to higher-converting channels.

Service: Losing a top client (20% of revenue) while onboarding delays push payroll out—activate freelance cover, pause new project intake, and accelerate invoicing for other clients.

Thinking checks

Do you know which single shock shortens your runway fastest?

Are your mitigation steps pre-defined and assigned?

Are you tracking early warning signals tight enough to act before the shock fully materializes?

If the answer is no…

Build the simplest stress model: adjust revenue down 20% and costs up 10%, recompute runway.

Identify the first two levers you can pull (spend cut, accelerate inflow).

Document response steps and threshold triggers.

What to track (minimum)

Scenario-adjusted runway estimates

Frequency of hitting early warning thresholds

Time to execute pre-defined mitigation actions

Cash conversion cycle drift under stress