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Automating and synchronizing forward-looking financial statements

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The first quarter is quickly coming to an end, and finance teams around the country are busy preparing for questions from the board. They’ll want to know what the first round of actuals say about the plan you put together last year. Were your assumptions correct? If they were not, are there new opportunities to exploit? Or do you need to scale back in some areas in order to meet the company’s goals?

Most important of all: Will the company have the cash to fund the priorities the board has set up for the coming year?

Answering these questions is no small matter. You’ll need to predict cash flow to the best of your ability, based on one set of actuals which are likely to change over time. But predicting the cash flow requires an accurate and forward-looking balance sheet. If you don’t understand where the cash is coming from and going to, how can you confidently budget for future activities and assess their impact on future financial health? Predicting the balance sheet, especially for a complex company, is the finance team’s least favorite job, because it means pulling data from the GL to forecast what the year will look like based on a new set of assumptions.

If there is one task the financial technology industry needs to tackle it’s this: synchronize the cash flow, balance sheet and P&L automatically, pulling data from the GL to the balance sheet so that at any time CFOs can answer any question thrown at them by the C-suite and the board.

Manual synchronization isn’t the only pain point

Sure, every corporate finance team member wants to be spared the burden of synchronizing the cash flow, balance sheet and P&L statements so they can predict what future quarters may bring, but that’s hardly the only pain point these professionals face. There’s a range of activities you’d like to do, but can’t because it’s extremely time consuming and difficult to synchronize the financial statements manually. Most finance teams are lucky if they can synchronize them once a quarter, which is a shame because there are real opportunities to be gained by “always on” report synchronization.

Let’s just say for a minute that your financial reports were automatically synchronized so that at any time, you can press a button and receive a forecast of your cash flow, based on a forecast of your balance sheet, which pulled data from your GL. All at once you would have a direct line of sight into the future financial health of your company (assuming your assumptions hold true for the coming quarters).

Think of what this will do for you and your ability to answer tough questions from the board. At any time you’d be able to understand what’s going on in the business and assess the financial impact of corporate decisions. Moreover, by assessing how different scenarios and assumptions will affect the organization — combined with knowing exactly what funds are available at any point in time — you can uncover new opportunities to accelerate growth and minimize risk.

Always on synchronization will also allow you to have more intelligent conversations at the P&L level, if that’s how your company is organized. You’ll be able to forecast cash flow on each product line or industry sector in order to provide strategic advice for making goals, driving sales or cutting expenses, if necessary.

Getting there

As I said earlier, fintech companies need to step up to enable automated forward-looking financial statements that are fully synchronized. This likely requires integration between the GL and the balance sheet forecasts, as well as workflows that process all data appropriately. In other words, the workflows should be such that every forecasted activity that appears on the budgeted income statement will find its way to the balance sheet forecast, and from there, contribute to the creation of a forecasted statement of cash flows automatically.

At the end of the day, every financial professional wants more time to focus on the things that matter — understanding the “why” behind the numbers. That requires understanding how money flows through an organization, which in turn, requires synchronization of the financial reports. Automating that synchronization will give the financial team a better level of insight, and more time to explore what those insights mean to the business.

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