Getting the full cash picture: cashflow forecasts vs cashflow statements

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When you’re steering the strategic course of your business, it’s important to have as rounded a picture as possible of your financial position. And that means being able to look forwards at the road ahead, as well as taking a look in the rear view mirror to see where you’ve been.

To get the full cash picture, you need to be able to review your past financial performance while also having a clear view of the future cash position of the company – and this is where cashflow statements and cashflow forecasts come into the equation.

Cashflow statements: your historic view

A cashflow statement takes the historic data from your accounts system and provides a picture of your cashflow performance over a given period in the past. It breaks down that cashflow into three key elements – your operating cashflow, investment cashflow and financing cashflow.

  1. Operating cashflow – this section of the statement tells you about the cash you’ve created as a business through your usual day-to-day operations.
  2. Investment cashflow – in this section you’ll see cashflow that results from any investments in financial markets, property or equipment etc. used in the business.
  3. Financing cashflow – in the final section you’ll find the numbers relating to borrowing funds, repaying debts, payments of dividends to your directors and capital that’s been brought into the business during the period in question.

What a cashflow statement shows you is the cash performance of the whole business over your given period, allowing you to see where there were cash dips, issues with seasonality or where you performed well against your cash budgets.

In essence, your cashflow statement shows you where you’ve been, so you can be better prepared for where you’re going – and this can be even more informative when combined with the forward-looking view of a cashflow forecast.

Cashflow forecasts: your future view

A cashflow forecast uses your historic cash data as a foundation, and then makes a prediction of your cash position at a given point in the future, whether that’s a month, a quarter or a full 12 months down the line.

Unlike the cashflow statement, that only shows you what’s happened, your cashflow forecast shows you a predicted future for your cash balance. And by having that informed view of the future path of the business you can see the potential issues and opportunities and take action based on this analysis and insight.

Bringing the past and future together

You need both a cashflow statement and forecast to truly be in control of your cash position.

Having the future view that a forecast provides AND the historic data that comes from your cashflow statement broadens your understanding, gives the best possible picture of your cashflow and provides the insight needed to take clear action.

For example:

  • Managing seasonal cash issues – your historic statements allow you to spot any past patterns in seasonality or cash dips, and using short-term forecasts helps to predict your cash position during these seasonal low points and take action to avoid any issues.
  • Getting the longer-term outlook – forecasts that look at the next quarter or year give you an accurate overview of how your cash position will look in future periods. Your historic statement will then show you how well you performed against these forecasts.
  • Measuring and refining your forecast accuracy – comparing your historic cashflow statements against your historic forecasts helps you to understand how accurate these forecasts were, and to then refine and improve the accuracy of your forecasting.

Manually comparing forecasts against historic statements can be time-consuming, meaning that it’s unlikely your finance team will always have time to invest in improving forecasting. But by applying the latest financial technology, the task can be made far more time-efficient.

Using the latest in cashflow solutions, like Fluidly, makes it easy to bring all your cashflow tools and reporting together in one key application. You can review your historic statement, forecast your future position, run cashflow projections and scenarios and easily compare your past forecasts against historic data to refine your forecasting accuracy.

With flexible tools to view the past and future performance of your cash, you’re in the best possible position to keep in complete control of your cashflow.

Find out more about managing your cashflow with Fluidly