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Understand how to dynamically forecast cash in 60 seconds ⏰


dynamically forecast cash

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This post is going to help you understand the logic in how a Statement of Cash Flows works


To start, you'll need an export of your P&L and Balance Sheet


Ready?


Go!


🕛 Your Balance Sheet will always show Assets = Liabilities + Owners equity


The values that make up ASSETS are ALWAYS equal to the sum of values that make up your LIABILITIES+ OWNER’S EQUITY…


The fact that this ties can help us a lot…why?


well because…


🕓 The CHANGE IN VALUE of these account balances each month equal each other too (this months value - last months value)


Think about it.


Since Assets = Liabilities + Owners equity…


the NET CHANGE in value each month of these accounts also have to equal each other too


Meaning


MoM ▲ in Assets = MoM ▲ in Liabilities + MoM ▲ in Owners Equity


Which is HUGE…


Because we can then…



🕕 FLIP the calc 🔄 for Assets to be (last months value - this month value) instead of (this month’s value - last months value)


If we do that, then MoM ▲ in Assets + MoM ▲ in Liabilities + MoM ▲ in Owners Equity = 0


Now all we need to do is…


🕗 Forecast the balance for all Balance Sheet accounts EXCEPT for cash


Think about it


If you’re taking the value for all balance sheet accounts deltas MoM other than cash…


Then they’ll no longer equal to 0…


And the amount to make them equal…is the missing link for your net change in cash


THAT is how you dynamically forecast cash


OK…times up! 🕛


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