Explainer: Statement of Cash Flows vs Forecasting

Posted 27 February by Barb Easter in Accounting, Cash Flow, Videos

Barb compares forecasting with cartoon flipbooks to “illustrate” the importance of a forward-looking, dynamic picture of cash in/out, rather than static cash information.


Explainer: Statement of Cash Flows vs Forecasting

Hi folks Barb here with Dryrun.

Cashflow Forecasting company out of Edmonton, Alberta, Canada.

I’ve been asked to go through my really lay persons example about the value of a cashflow statement versus cashflow forecasting.

So to that end I’ve drawn a picture. Actually I’ve pulled it off the internet.

If you have a grade 4 student that might look somewhat familiar to you but as you can see I’ve got a pretty static not too complex four petals on the flower. Clearly the flower I can infer that it has a pleasant odour to that insect that’s there, it’s got a couple leaves and it’s growing in soil of some sort.

Instead of talking directly about a statement of cash flows as we all know it. A really underutilized tool, I think for businesses as compared to a cashflow forecast.

What I’ve chosen to do is present this topic in really foundational non-jargony terms.

Those are the terms that your clients use. Have great success explaining this concept in these types of terms.

Getting back to my picture. OK which I’m going to compare to this statement of cash flows.

My picture. It is a snapshot in time. We can agree that that bee or that insect will eventually land on the flower, hasn’t yet. I can’t however see any supporting or antecedent data. I just know that when somebody drew this, this was the snapshot that they chose to illustrate.
OK in some cases perhaps in this case you would argue that antecedent data or pre-supporting data isn’t necessary, relevant or interesting.

I’m a farmer grew up on a farm. So to me that antecedent data for growth would be really useful but you might feel differently.


I also can’t get a good sense of next steps beyond the immediate future.

I can infer because it’s made clear to me in this image that that bee is going to land on the flower.

Are there more bees? Is it a cloudy day? Is it a sunny day? Is there a leaf bud? Is the flower close to the end of it’s life and it’s about to wilt? All of that is hidden from me. OK this is a static image.

Finally, or second finally I guess, as I have a note here to keep me on track…

I can’t sub in different endings. So I can’t both simultaneously draw the picture that has been drawn and draw a different picture on top of it and expect it to be intelligible.

I can’t do that. Nobody can do that. OK that’s just not the value or an attribute of a static image.

It’s just not.

I would argue that altogether this image is a less engaging experience and to that point I would say let’s look at museum attendance where there is lots of pieces of art and a pleasant sensory environment versus Netflix subscriptions.

People saw Netflix and went wow this is a fantastic idea. OK so basically that engaging media environment, right on your TV at home.

What does that have to do with cashflow forecasts?

Well what if I told you that just as the image I just showed you was actually part of a series of images, so is a cash flow forecast comprised of a bunch of statements of cash flows, all lined up together and they do this.

If these were all statements of cashflow I could line them up, essentially at that point I would then have a moving picture of the cashflows in a business. The cash would actually appear to flow flipbook style.

I would be able to see supporting data or antecedent data.

OK so let’s look at last Q2 compared to this Q2. Let’s look at the difference that has occurred from that time to present.

I’d be able to at the end of this flipbook I would say, oh OK well looks like there’s another bee on the horizon maybe it’s going to land.

It would inform my story. I would be able to take this last frame as a jumping off point and go I wonder what’s going to happen next and I would be able to make strong inferences to that end.

I could actually as well take the latter half of my flip-book, I could sub in a different ending, put it back together and say oh OK so I’ve changed the end of my movie.

Perhaps now that didn’t actually happen because I don’t have two flip-book sets.

But perhaps the flower grew two heads, perhaps the sun came out and or perhaps the flower got rained on and grew taller.

OK I am able to do that with enough with the right platform and some imagination. I could do that. I could change the front of the movie. I could maybe take a look at, I can make a shorter flip-book in which I looked at days 1, 7, 14, 21 and 30 or 28 instead of looking at a daily.

Although if I had the data available to me, don’t you think that instead of looking at a yearly view, I would for the same amount of effort look at a daily view or have it available to me?

Finally it’s all together if you have a platform chosen properly it’s all together a more engaging experience.

Back to my movie at my museum versus Netflix. Altogether more engaging experience. People like it, they can tell we’re designed to tell stories as human beings.

This looks more like a story presented easily to me than this does.

Similarly, this looks like more of a story than this does.

So if you’re thinking that engagement is low for cash flow statements the most important statement that a business should or could be using regularly, I would invite you to to think of why that might be and to use my example if you want.

Thanks for listening.

If you have any comments or feedback or want to send me a really primo flipbook you may do so at Barb@dryrun.com talk to you later.

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