Many lenders and investors will ask for integrated management accounts and forecasts. So, what is this and why is it useful?
Integrated financial data is essentially a linked Profit and Loss Account, Balance Sheet and Cash Flow Statement. This can be on a historic basis, as in the Audited Accounts of large entities where it is a statutory requirement, but is more helpful if monthly management information and forecasts take this format.
When producing data many businesses just focus on their Profit and Loss Account. Whilst this is an essential starting point, it does not show the worth of the business or its cash flow timings. A standalone cash flow can help short term, especially if cash is tight and needs to be monitored daily. Looking further ahead, however, an integrated approach is more useful as it brings together all aspects of the business.
An invoice sent to a client impacts the Profit and Loss as turnover, the Balance Sheet as a debtor and ultimately the Cash Flow Statement when paid, so it makes sense to show data in an integrated format. An integrated forecast model will also let you make assumptions – what if debtors were not collected promptly or you entered into a new project? How would this impact your profits, cash and business worth? This insight can stop costly mistakes, identify your margins of safety and help analyse opportunities before you expose yourself to risk.
The best integrated forecasts roll forward starting with annual statutory data, moving through to monthly management accounts and then forecasting using realistic assumptions. Lenders and investors seek them as they:
- Are credible, as they must balance
- Give a clear indication of borrowing/investment needs
- Allow them to quickly run “what if” scenarios
- Are perfect for covenant monitoring which uses a combination of Profit and Loss, Balance Sheet and Cash Flow data
An integrated model should not though be viewed as something to just satisfy third parties. It is an important monitoring and forecasting tool that can be used in-house to enable informed strategic decisions.
If you wish to know how integrated data can help your business, then please let us know.
Our contact details are:
07780 336956 Raemy Singh FCA
07780 336952 Delphine Paterson FCCA ACIB
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