Cashflow Reporting

Actuals

Reporting Actuals cashflow on a Statutory basis is relatively straightforward.  Starting with a full Trial Balance, it is simply a question of defining all the calculation logic to put all the elements of the Income Statement, and every movement of the Balance Sheet accounts, into the right place in an accounts structure designed to mirror the structure of the statutory cashflow statement.

Whilst it is possible to produce a statutory basis cashflow statement as part of a Management Reporting system, this is more commonly left as an exercise for the group consolidation system, with the added benefit that (hopefully!) the group reporting Chart of Accounts (CoA) is smaller than a divisional / regional reporting CoA - there's therefore less calculation to do.

Budget and Forecast

Reporting cashflow as part of a Budget and Forecast process introduces some interesting challenges, but also some new possibilities.

If the Budget/Forecast model covers the full Balance Sheet as well as the Income Statement (entirely possible, although it's not for the faint-hearted), then the statutory basis cashflow should fall out using exactly the same logic as already built for Actuals.

The added benefit is that a properly constructed full Balance Sheet model should also allow for the identification of all cash flows in and out, allowing for the generation of a Receipts and Payments basis cashflow statement as well as the Statutory view.

Of course, considerable rigour is required to ensure that all the logic of the planning model properly reflects the operations of the business and, critically, that there is complete coverage of all Income Statement and Balance Sheet accounts, individually or in groups, once and once only.

Operational Cash / Treasury Management

As an aside, it is worth pointing out that neither of the processes discussed above are likely to be directly relevant to short-term cash/treasury management.  They use, as their inputs, fully closed financial actuals or a budget/forecast model which is likely to be at an appropriate 'materially correct' level of aggregation/summary.  They are also on a 'cashbook' basis which may, in some businesses, be materially different from the actual bank deposit balances at the period end date.

Short-term cash management is almost always a parallel and separate exercise from statutory cashflow reporting derived from financial actuals.  Whilst it will inevitably take many inputs from financial systems, it typically involves considerable human intervention with detailed knowledge of operational behaviour, inputs from other operational systems, detailed analysis of the state of material items in key sub-ledgers (Accounts Payable, Accounts Receivable etc.), and a healthy dose of direct communication with colleagues about exactly what is expected to happen to key items in the next few days/weeks.

The most appropriate solution for such highly flexible and changeable activity is, dare we say it, usually a spreadsheet.

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Who's behind epmgurus?

Nigel Dahl

Nigel Dahl,

Managing Director of epmgurus, brings 30 years of diverse experience to bear in helping organisations and teams through change – of size, structure, systems, management or ownership.

Nigel has run, advised, supported or worked with Finance functions from one-person operations up to globally dispersed Finance departments of several thousand people. He knows what good (and bad!) looks like.

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What is EPM?

Enterprise Performance Management (EPM) is a broad term covering any business process that seeks to improve performance through a continuous loop of data collection, reporting, analysis and, most importantly, informed and targeted action.

In practice, Finance EPM is generally considered to cover at least Strategic, Financial and Operational Planning, Budgeting and Forecasting, Management Reporting (MI), Financial Consolidation, Statutory Reporting, Profitability and Cost Management, including Cost Allocation.