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 — And Why It Matters
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!
🧮 The Four‑Way Model You Need
Forecast 5 doesn’t stop at P&L, Balance Sheet and Cashflow. It adds a Funds Flow statement — tracking:
🔹working capital changes (debtors, creditors, stock)
🔹investment activity
🔹financing activity
to arrive at your Total Cashflow Inflow or Outflow.
This additional layer exposes the true path of your cash — not just the “paper profit”.
A quick arithmetical audit trail that uses the Funds Flow statement allows the analyst to confirm the overall integrity of Forecast 5’s financial model. Tracing the “Total Cashflow” in the Funds flow 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 Funds flow 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.
🚨 Red‑Flags That Only Cash‑Flow Reveals
We believe passionately in Variance Analysis and Rolling Forecasts; the ability to compare monthly and YTD 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 Funds flow Report – Working Capital Changes, Financing Changes and Investment Activity Changes – hold the key 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 build up or manpower requirements. These and other problem issues only show up in detail in the Funds Flow Statement.
💬 Proof In The Pudding
A real life example of the benefit of the Funds Flow 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 Funds flow 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 Funds Flow 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 Funds Flow Report.
✅ Knowing Where Your Cash Is
In a world where profits can mislead and auditor warnings abound, asking “Where is the cash?” isn’t optional — it’s essential. With Forecast 5’s powerful forecasting model, you’re not just hoping for liquidity — you’re proving it.
Move beyond static spreadsheets or blind faith. Get clarity, act fast, and ensure your business doesn’t just survive — it thrives.
