Cashflow fundamentals revisited

Generator: POINT OF VIEW

Think of cash flow as corporate blood flow. Without sufficient cash (or blood), corporations (people), die.

In the case of companies, lack of cash flow or poorly calculated cash flow forecasts can take months to become visible; to the detriment of shareholder wealth. In people, it can be just as dire, and usually takes minutes.

Cash flow modelling is an Art and a Science; every bit as exacting as it is exasperating to find errors, omissions and misunderstood or unclear assumptions.

With time, cash flow forecasts become rigid, especially when modelled in spreadsheets. They dislike flexibility and adaptation to changing business models, corporate structures or environmental factors.

Cash flow errors have brought down companies where certainty was expected and disaster triumphed.

The Art to maintaining cash flow forecasts is in physically moving from deskside modelling to where the cash originates, is spent or invested, that is, out there in the business - the inflows and outflows of daily activities.

Familiarity (e.g. comfort from a keenly constructed model) prevents cash flow forecasters from getting behind the numbers to find what is happening beyond the immediate office. It is a people process as much as a data analysis piece.

Lenders, authorities, your creditors, employees, and customers depend on the accurate, complete, and valid cash flow modeling of your company’s fundamentals.

At Generator, an independent cash flow forecast assessment usually finds issues, sometimes fatal consequences, that can severely detract from forecast reliability.

Does your cash flow forecast truly represent your company’s blood flow?

#cashflow #cashflowmanagement #gotogeneratoruk