Using Conditional Formatting to Highlight Risks in a Cash Flow Model

Written by CFI Team

Reviewed by Jeff Schmidt

Read Time 5 minutes

The Value of Conditional Formatting in Cash Flow Models

Even the most carefully built cash flow model can miss the mark if key risks aren’t easy to spot. That’s where conditional formatting in Excel comes in — it highlights potential issues immediately, so you can catch errors or red flags before they escalate.

In monthly cash flow modeling, this is especially valuable. With so much data spread across time periods, it’s easy for things like cash shortfalls to get buried. Conditional formatting brings those issues to the surface quickly and draws attention where it’s needed most.

Let’s walk through two practical ways to use conditional formatting in monthly cash flow models to highlight common risk areas: balance sheet checks and low cash balances.

Conditional Formatting in Cash Flow Models — Source: CFI’s **Monthly Cash Flow Modeling** course

Key Highlights

Conditional formatting in Excel lets you highlight cells based on their values, making it easier to spot key information at a glance.
Balance sheet checks and low cash balances are two risk areas where conditional formatting can be especially useful in monthly cash flow models.
Applying conditional formatting turns your model into an automated warning system, flagging potential cash issues early so you can take action before they escalate.

Highlighting the Balance Sheet Check

One of the simplest and most useful places to apply conditional formatting in a monthly cash flow model is the balance sheet check. This diagnostic tool confirms whether the balance sheet balances according to the fundamental equation:

Assets = Liabilities + Equity

An imbalanced balance sheet indicates an issue in your model logic. Conditional formatting can help make that issue clear immediately.

Here’s how to format a balance sheet check using conditional formatting:

Select the cells containing the balance check status, such as a column that displays “Okay” or “Error.”
Go to Home → Conditional Formatting → Highlight Cells Rules → Equal To.
In the dialog box, type Okay, then click Custom Format.
Choose a green font color with no fill and click OK.

Now, the OK status will appear in green text, making it easy to scan across months and confirm things are in balance.

But that’s only half the story. You also want the model to warn you when the numbers don’t match.

With the same cells selected, apply a second rule:
- Go to Conditional Formatting again.
- Set it to flag Error (or any other text besides “Okay”).
- Choose a light red fill with dark red text and apply.

Conditional Formatting - Error

Now, if the model falls out of balance, the issue immediately pops off the screen. You can even test it by tweaking an input and watching the status change — then undoing the error once it’s confirmed.

This simple setup is a fast way to keep the model in check and prevent incorrect outputs from going unnoticed.

Adding Cash Balance Alerts for Low Liquidity

Conditional formatting can also highlight instances where cash flows fall below a specified level.

In a monthly cash flow forecast, you’re predicting cash movements over time. That makes it especially important to flag low liquidity before it becomes a problem.

With conditional formatting, you can set a minimum cash threshold and immediately spot months where the company might need to raise funds.

To apply a cash balance alert in Excel:

Select the row or column with the monthly cash balances.
Go to Home → Conditional Formatting → Highlight Cells Rules → Less Than.
Enter the threshold value — say, 1,000 (for $1 million, depending on the units used in the model).
Choose a formatting style that stands out, like a light red fill with dark red text, and apply.

Once applied, any month with a cash balance below the threshold is flagged. This gives you an immediate indicator of potential liquidity concerns, even across a 12-month horizon.

If you notice one or more months turning red, it might be time to consider funding options. Your organization may want to raise additional capital or explore adding a revolver — a revolving line of credit that can cover the gap. In more advanced models, that feature can be built in, but even a simple visual flag like this helps prompt key questions.

A cash balance alert gives your model a clear decision point by signaling when funding might be needed.

A Simple Way to Make Cash Flow Models More Actionable

Conditional formatting may seem like a universal Excel feature, but in a monthly cash flow model, it plays a practical and strategic role. It highlights key issues — like a balance sheet that’s out of balance or a cash position that’s dipping too low — before those issues become more complex to fix.

Adding just a few smart formatting rules can turn a static forecast into a more decision-ready tool. It draws attention where it matters, keeps errors from slipping through, and gives users the visual cues they need to act with confidence.

If you’re looking to sharpen your Excel skills and apply them to complex financial models, structured training can make all the difference.

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