Three-way cash flow forecast | Why make one and how to do it in 10 minutes 

Also known as the three-statement model, the three-way cashflow forecast is a set of key financial reports that helps companies understand their cash position and financial health.

Three statement models give cash flow reports greater credibility by providing an overview of the Profit and Loss report and Balance Sheet. 

Read on to learn what is the three-statement model. Why you should make one. How to analyze your dynamically connected financial model. And how to make one in 10 minutes.

What is a three-way forecast? 

Three-way forecasts are granular financial forecasts that are a crucial component of business planning. It's an advanced financial model that shows the financial impact of business decisions in different scenarios. The three-way forecast combines three key financial reports in one neat little package. 

  • Income Statement/ Profit and Loss
  • Balance Sheet 
  • Cash flow statement 

Using these reports, three-way cashflow forecasting provides insight into the anticipated outcome of your business.

It allows businesses to make more accurate forecasts and gain better insights into their future financial position.

What does your forecasted cash flow statement tell you?

Cashflow reports will help you predict any liquidity issues in the near future.

Key Cashflow forecasting figures

When looking at cashflow forecasts for your business, pay special attention to these five key figures:

  1. Cash inflow (Revenue)
  2. Cash outflow (Expenditure)
  3. Net cash flow (Revenue - expenditure)
  4. Opening cash balance (Cash balance at the beginning of the cash flow forecasting period)
  5. Closing cash balance (Cash balance at the end of the cash flow forecasting period

Your closing cash balance is the sum of net cash flow and opening cash balance.

Why are cash flow forecasts crucial for your business?

82% of businesses fail because of poor management and understanding of their cash flow. A business should at least be able to produce a simple and reliable cash flow forecast.

It can give you a warning if you run out of business. It can show your investors that you know your cash standing and have a plan to improve it.

If you want the ultimate guide to cashflow forecasting, check out this article.

What does your P&L forecast tell you?

Cash flow reports are fantastic at helping you understand the cash inflows and outflows of your business. But, it does not show you revenues, expenses, and chances of turning a profit.

You can have a positive cash balance but not a profit. (Imagine a startup getting a significant influx of investment, they have cash in the bank, but their earnings can be negative) A cash flow forecast on its own is not enough.

Key P&L Figures 

  1. Revenue (Income generated by your business)
  2. COGS ( Cost of producing your goods and services)
  3. Net profit (the amount of money you earn after deducting COGS, interest, and taxes)

Forecasting your profit and loss statement shows you whether or not you can make more sales over a certain period, your expected profitability (net income divided by revenue), and whether your profit will grow compared to the previous period.

What does your balance sheet forecast tell you?

This is the final piece of three-way forecasting. It is an overview of what a business owns and owes.

Key Balance sheet Figures 

Assets (Things owned by the business: cash, property, inventory)

Liabilities (Things owed by the business: rent, loans, taxes)

Equity (Shareholder's equity)

Why are balance sheets crucial for your business?

It can tell you if you have enough cash on hand, whether you have borrowed too much money and whether or not you have sufficient liquidity.

Benefits of three-way cash flow forecasting

Better insights

Three-way cash flow forecasts provide better insights than the standard cash flow forecast because it presents to their reader one consolidated forecast. This can give businesses an all-rounded view of the organization and provide insights with better credibility and precision into a company's health and future cash position.

Accurate scenario analysis and prediction

With three-way cashflow forecasting, businesses can better predict the outcomes of 'what-if scenarios' such as lower sales during an economic downturn, changes in hiring plans, or the financial benefits and drawbacks of acquiring new equipment. With these forecasts, businesses can compare decisions to their actuals to assess what went well and what didn't and adjust their strategy. 

Acquire funding

In addition to assessing a company's success internally, three-way forecasting can help when companies are looking to expand and acquire financing. When banks or investors examine a company's financial statements during their due diligence, the 3-way forecast can provide greater credibility, clarity, and confidence regarding a business's cash position and financial health.

Optimize growth and profitability 

Not only does using a three-way financial forecast improve your level of financial management, but it also provides vital insights into how you can improve your financial performance. It allows businesses to ensure they're never in the red.

How to easily create a three-statement model in 10 minutes

Xero and Quickbooks can easily generate an Income Statement, Balance Sheet, and Cash flow statement using your historical financial information. But the next step to optimizing business performance comes from turning these historical statements into forecasts.

Leverage technology and real time data

Deciding how to manipulate your numbers to simulate a scenario can be challenging. Luckily, there are apps you can integrate with your accounting software to help create these forecasts. 

gini integrates with your Xero or Quickbooks account to help automate forecasts in real-time. 

Advanced financial models that sync with your accounting system

It only takes minutes to get synced up with your accounting software, and from there, you can generate all types of forecasts. gini's forecasting software also comes with preset options, which makes it easier to test business decisions and simulate scenarios. 

You can easily manipulate your numbers using built-in machine learning forecast. There's also a 3-month average, 6-month average, linear regression, exponential regression, and custom forecast options available for more experienced finance professionals. 

give potential investors confidence

Three-way financial modeling can be a valuable piece of information as it shows the financial impact of business decisions before they're even made. It gives investors and financiers confidence in a business which determines whether an investment in the company is viable. 

How to build a three-way cash flow forecast with gini

Three-way modeling with gini is simple. Just follow these simple steps:

  1. Create your account to access our 14-day trial here.
  2. Use the guided onboarding to connect your Xero or Quickbooks online and Google Sheet accounts.
  3. Then go to the Dashboard page, and click on Cash Flow Forecast Model.
  4. That's it! When all is done, you will have a three statement model for your business and can start planning for your different scenarios.

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