Cashflow forecasting isn’t just for accountants—it’s a survival skill for CEOs, CFOs, and financial advisors.
A few years ago, I asked a family member who runs a big South African investment fund how much he’d lost in the infamous Steinhoff scandal, a massive fraud that involved overstating profits and assets by US$7.4 billion.
“Nothing”, he replied to my amazement, knowing that prior to its collapse when investors lost 98% of their money this company had been the go go stock, the darling of the Johannesburg Stock Exchange.
He went on to explain that his fund had originally a “taster” investment in Steinhoff, but sometime before the collapse he’d phoned the company to ask
“I see you have very impressive profits, but where is the cash?”.
Not satisfied with the brushoff responses he was getting he put the phone down and immediately sold his entire holding.
Its a question heard again and again by financial advisors when talking to clients, beguiled by impressive profit forecasts – only to find that there is limited - or no – cash available?
Where is my cash? is the anguished cry of the Chief Executive who failed to forecast properly!
Cash is King – its a cliché, but absolutely correct; cash is essential for business providing the ability to weather financial difficulties or seize opportunities.
Cash provides the immediate means to cover expenses, invest in growth, and manage unexpected challenges. And in today’s very uncertain financial times, Cash is indeed King!
That’s why Forecast 5 offers a four-way forecasting model; not only does our programme include the obvious reports like forecast Balance Sheet, Profit and Loss and Cashflow but also a forecast “Fundsflow” statement.
And it’s only the FundsFlow that can answer the question:
Where has my profit gone??
A quick arithmetical audit trail that uses the FundsFlow statement allows the analyst to confirm the overall integrity of Forecast 5’s financial model. Tracing the “Total Cashflow” in the Fundsflow to Balance Sheet bank movement and the Profit after Tax to the Retained Earnings movement, and that this Profit figure is also opening position on the Fundsflow Statement – and the analyst can sleep well at night, having confidence his model balances all round, the reports integrate consistently and the model, overall, is reliable.
Why is all this important?
We believe passionately in Variance Analysis and Rolling Forecasts; the ability to compare monthly and y-t-d performance to original budgets, then based on real performance to update the forecast leading to the best possible understanding of the likely outturn at the end of the financial period under review.
And these three sections outlined so clearly in Forecast 5’s Fundflow Report – Working Capital Changes, Financing Changes and Investment Activity Changes – hold thekey to understanding the changing circumstances of the organisation.
“Overtrading” is a case in point - increasing sales but not bringing in debtors fast enough, adequately financing stock and creditor buildup or manpower requirements. These and other problem issues only show up in detail in the FundsFlow Statement.
A real life example of the benefit of the FundsFlow Report:
A prospect currently trialling Forecast 5 queried with Geof Nightingale, Forecast 5’s founder, the reported bank balance, claiming it was not right.
It was too high, in his words “not real”.
Geof ran the Fundsflow Report, which highlighted the debtors change in working capital was too optimistic. A quick discussion and review of the sales records and consequential change to the cash receipts profile to a more realistic term reflected in a lower year end bank balance in the FundsFlow Report and the Balance Sheet.
The significant advisory benefits? The client was satisfied on two counts; he saw the value of Forecast 5 and the forensic value of the Fundsflow Report.
A forecasting model that really highlights when storm clouds are in the offing or can indicate future opportunities is the essential tool for the financial advisor.
If you want to be able to respond in detail when the CEO says – “Where has my cash gone” – contact us to acquire your own copy of Forecast 5.
Or if you want a demonstration or would like to try a 21 day trial, follow these links; Demo or Trial.
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Don't delay. Stay ahead, stay cash-aware.
