Preparing cash flow data

If you want to prepare efficient presentation of cash flow data you need to properly prepare input data, namely actual (past) cash flow data and especially appropriately prepare the cash flow forecast.

Different types of charts for different types of data

In general, you have two methods to prepare cash flow statement for past periods. Direct and indirect method.

Direct method means that you summarize and classify each inflow and outflow from your company’s bank account. It gives you the best information on your cash activities. However, this method is not preferred and is not used by most companies since it requires much more effort to prepare.

Hence, most companies prefer indirect method of preparing cash flow statement. It means that you take your Profit and loss statement and your Balance sheet and calculate Cash flow statement out of them. It is more convenient to prepare Cash flow statement using indirect method and besides that, this method gives you another point of view.  It clearly shows a connection between reported net income (from Profit and loss statement) and cash provided by operations (as the most important category in Cash flow statement).

Preparing cash flow forecast for future periods

When preparing cash flow forecast, we should distinguish between short term forecast (few weeks) and a bit longer term forecast (few months up to half a year).

To prepare short term (few weeks) forecast you first need to have a list of receivables and payables with due dates and should know if and which of your customers tend to delay with their payments. Besides, you should also consider all other potential activities that might have bigger impact on your cash flow (such as investments, loans taken or being repaid etc.). Based on all this information you can prepare inflow and outflow forecast, but for no longer period than a few weeks.

To increase reliability of your business and avoid liquidity issues, you should plan your cash flow for longer than 2-3 weeks. You should know today whether you will need additional financial resources in the next 4, 5 or 6 months so you have enough time to secure them.

Preparing longer term cash flow forecast is not a piece of cake 😉. Information we talked about earlier (receivables and payables with due dates) does not give you good basis to prepare the forecast for next 6 months, because in such a long period there are also other factors that influence your cash flow (for example seasonal influence, growth etc.).

DG180 team has developed advanced algorithms to calculate future cash flow based on your past actual data. Different types of cash flow projections are suitable for companies in different stages and in different industries and our cash flow projections consider all these factors. This kind of report gives you better insight and ability to make better decisions regarding your planned cash-flow forecast.

Cash flow forecast prepared by DG180 will give you the answer to the next question: What will our cash situation be in 3 months, if we continue with our current operations?

We believe that many SMEs lack know-how and resources to prepare and present such cash flow analysis but that does not mean they do not need it. SMEs need cash flow analysis as much as big companies do. Actually, we believe they need it even more because they can run into liquidity problems much faster. For example, SMEs which raised an investment should know their burn rate in order to know if and when they will have to provide additional financial resources.

We at DG180 are happy to help any company that needs to understand and know its cash flow or its business performance. Simply reach out to us 😀!