A common thread in financial advice to businesses is the critical importance of the cash-flow statement above all others. This has been written about by many Fractional CFO’s and finance individuals, and it is very true.
However, how many times have you been in a meeting with the CEO/Owner of a business, and while reviewing the financials their eyes tend to gloss over when the cash-flow statement comes out? I can relate with this. Quite recently I received a prospective clients cash-flow that even left me baffled, and it was also several pages long.
First off, the very size of it “protects itself against the risk of being read”. Secondly, the complexity of it was mind bending. Thirdly, financial statements on their own are meaningless (this one didn’t have comparatives). Detailed cash-flows almost never have a comparative history in which to measure their improvement or decline. Finally, the standard cash-flow statement is laid out in a format that usually only makes sense to the accountant.
The solution is summarization, simplicity, comparatives and a format that makes sense to the owner/CEO. The detail needs to be left to the analyst and CFO, not reported to the decision maker. Only the results, including changes over the prior period, and reasons for those results should be presented. In addition, try presenting them in something closer to the P & L format, a report that non-financial leaders understand. Not the operating activities, investing activities, financing activities breakdowns that are typical. It should be laid out as follows:
Cash In
Ø Receipts
Ø Financing
Ø LOC
Ø Investment funds
Cash Out
Ø Product supplier costs
Ø Capital Acquisitions
Ø Sub-Contractors
Ø Investment out
Operating Expenses
· Rent
· Telephone
· Professional Fee’s
· Etc
Net Cash & Accumulated Cash
Review
How the cash-flow is performing as-is and versus past results and the results of the subsequent 13-Week forecast going forward (Done on a daily basis if possible and adjusted ongoing as required).