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5 Tools You Might Not Be Using (But Should)

Historically, CFOs have relied upon traditional financial statements to guide their decision-making.  Today, the prevalence of more sophisticated accounting systems and the demand for more information more quickly has given rise to the need for different kinds of reporting.  Here’s a list of 5 tools that can help give you manage cash, identify areas for improvement, and plan for the future.

5 Tools You Might Not Be Using (But Should)

Daily/Weekly Cash Report

The Daily (or Weekly, depending upon how tight cash is) Cash Report gives a snapshot of the daily/weekly cash position as well as a forecast of expected cash inflows and outflows for the day/week. In a cash crunch, using this tool daily can be a lifesaver.  Highlighting projected cash shortfalls can help focus efforts on collecting receivables or generating revenues.  Once the cash crisis passes, preparing this report at least on a weekly basis can help the CFO determine if the cash balance is growing, or if it is being used elsewhere in the business.

Click here to learn more about the Daily Cash Report.

Flash Report

The Flash Report, or financial dashboard report, provides a periodic snapshot of key financial and operational data. This one-page report can be prepared on a daily, weekly, or bi-monthly basis, depending upon the availability of information and needs of management.  It is divided into three sections:  Liquidity, Productivity, and Profitability. The Liquidity section focuses on operating cash flows and the cash conversion cycle.  The Productivity section lists key performance indicators (KPIs) to track changes in operating productivity. The Profitability section shows an estimate of profitability for the period.  The key to using this report effectively is not to make it a mini-P&L, but to only capture and track that data that is useful in decision-making. Otherwise, it’s too cumbersome to prepare and gets put on the back burner.

Click here to learn more about Flash Reports.


Most companies prepare an annual budget, but not all prepare projections.  What’s the difference?  A budget sets the company’s goals while a projection defines its expectations.  Budgets are static and are often useless shortly after they are prepared.  By contrast, projections are dynamic and adapt to changing conditions and expectations.  Projections should be updated with actuals monthly and forecasted numbers (such as sales) should be changed going forward as better information is obtained.  While many companies prepare projected income statements and possibly cash flow statements, few prepare a projected balance sheet. A projected balance sheet is a key tool used by lenders when deciding whether to invest in a company.

Click here to learn more about Projections.

Fluctuation Analysis

A Fluctuation (flux) Analysis, also called common-size financial statements, looks at changes in the income statement or balance sheet expressed in dollars and as a percentage of sales or total assets. Prepared annually or as needed, this report looks at changes over a four- or five-year period and is useful to identify “slippage” or small changes in accounts over the course of years that might not show up when looked at as raw dollars only. For example, a 2% increase (as a percentage of sales) in COGS wages over a four year period may not seem like much.  But in a $50 mm company, that’s a million dollars of slippage!

Click here to learn more about Fluctuation Analysis.

Ratio Analysis

If you’ve ever put together a loan package, you’re probably familiar with Ratio AnalysisBankers love this tool! They can use it to compare your company to others in your industry and market using established benchmarks.  It’s also a useful tool for CFOs for the same purpose.  Is your company as profitable as it should be?  Sometimes it’s tough to know unless you’ve compared it to others in your industry.  Looking at key financial ratios is also useful to track trends within the company year over year.  If your banker is looking at it, shouldn’t you?

As you can see, there are many other tools besides the financial statements that can help you make better, more timely decisions and plan for the future.   Which tools are you using in your business?

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs. 5 tools you might not be using

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5 tools you might not be using

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Using Flash Reports to Improve Productivity

In today’s fast-paced business world, most companies use some sort of dashboard or flash report to monitor and improve productivity and other key performance indicators.  Despite their wide use, many are still confused on what exactly should be measured and what constitutes a key performance indicator.

Using Flash Reports to Improve Productivity

What often happens is the CFO/Controller throws in any indicator that might be important just to cover their bases.  Unfortunately, the report may become too detailed to prepare quickly. And it will loose its usefulness. Eventually, either you stop producing the report or the CFO or Controller only looks at it.  In order to drive productivity, all key team members must review the report and take action on the results.

Start your Flash Report today with our Flash Report Tool – available for only $9! This tool is what we use with every client. Learn more about how you can access it here.

Here’s a helpful video of three things you should know about preparing a flash report.

1. Measuring Productivity Is Often The Most Important Section

When you identify 2-3 measurements in volume, you can have an exponential impact on your profitability. Although measuring productivity is the most difficult part in a flash report, get operations involved to get the key drivers they use to run their part of the business.

2. Go Back to the Financial Projections to Identify the Drivers

In building the financial models, you have already identified the drivers connected to profitability. By performing a sensitivity analysis on those key drivers, you can identify the most impactful drivers in your company. Limit the number of drivers to 2-3.

3. Give the Flash Report to Everyone in the Organization

Most companies limit the flash report to the top management in the company. Instead, give the flash report to everyone in your organization. Let them know how each employee can personally improve profitability and their job performance.

If you want to learn more financial leadership skills, then download the free 7 Habits of Highly Effective CFOs.

Using Flash Reports to Improve Productivity
Using Flash Reports to Improve Productivity

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Managing Cash Flow

Effectively managing cash flow is an issue that all businesses face, whether they have plenty of cash or are experiencing a cash crunch.  Cash is the lifeblood that fuels current operations and allows for growth, so developing a strategy to manage this most important asset is key.

Effectively Managing Cash Flow

So how do you effectively manage cash flow?  In the article “Track Money In and Out of a Company“, Jim Wilkinson suggests the following strategies:

  1. Prepare cash flow projections
  2. Manage and work your operating cycle
  3. Watch expenses carefully
  4. Use your cash wisely

The article lists specific examples of what these strategies look like and how to implement them. Click here to read more about it.

For more tips on how to improve cash flow, click here to access our 25 Ways to Improve Cash Flow whitepaper.

managing cash flow
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Percent-of-Sales Method

See Also:
ProForma Financial Statements
Cost Center
Weighted Average Cost of Capital (WACC)
Standard Costing System
Activity Based Costing vs Traditional Costing

Percent-of-Sales Method

The percent-of-sales method is a technique for forecasting financial data. When forecasting financial data for strategic planning, budgeting, or for developing pro forma financial statements, analysts can use the percent-of-sales method of forecasting to create reasonable projections for certain key data.

The idea is to see how a financial statement account item relates historically to sales figures. Then use that relationship to project the value of those financial statement account items based on future sales estimates. This method of forecasting requires the items to be estimated based on relations to sales figures, thus it is necessary that movements in the items to be forecast are highly correlated with fluctuations in the sales figures. Forecast that item using a different technique; especially if there is no clear correlation between the item to be forecast and sales figures.

For example, if, after examining and analyzing historical financial statement data, an analyst determines that inventory levels are typically at 30% of sales. Additionally, the sales forecast for the coming year is for $100,000 dollars in sales. Then according to the percent-of-sales method of forecasting, the analyst can estimate inventory of approximately $30,000, or 30% of the estimated sales figure.

If you’re still not sure how to accurately project your sales, click here to access your free Goldilocks Sales Method tool. This tool allows you to avoid underestimating or over-projecting sales.

Three Step Process

There are three steps in the percent-of-sales forecasting process. First, use the sales figures to identify the correlated items. Then separate the uncorrelated out. To do this, analyze historical financial statement data. Only the items which are correlated with sales figures can accurately be predicted or forecast using the percent-of-sales method. Estimate items that have no concrete relation to sales figures using a different technique.

Next, forecast sales for the fiscal period in question. Because all projections in the percent-of-sales method of forecasting depend on relationships between financial statement items and sales figures, it is very important to get an accurate sales forecast.

The third step in the percent-of-sales method of forecasting is to forecast the values of certain appropriate financial statement items. You can accomplish this by using the sales forecast from the previous step in combination with the historical relation between the financial statement item and the sales figure.

Percent-of-Sales Method

1. Analyze historic financial statement data
2. Forecast sales for the fiscal period
3. Forecast financial statement items using sales forecast

If you need help creating an accurate sales pipeline, download the Goldilocks Sales Method.

percent-of-sales method

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Pledged Collateral

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Present Value (PV)

See Also:
Future Value
Adjusted Present Value (APV)
Net Present Value Method
Investment Analysis
Discount Rate

Present Value (PV) Definition

The present value is simply the value of future dollars or currency in present day terms. The present value is simply answering the question how much a dollar in the future is worth today.

Present Value (PV) Explanation

The present value is often used in valuation to discount projections that companies make about themselves so they can figure out how much the company stock price is or maybe its equity value. The present value becomes useful because of inflation. If inflation were to increase at an increasing rate then the company would see the present day dollar as less valuable to them.

Present Value (PV) Formula

The present value formula is as follows:
PV = FV/((1 + i)n)

PV = Present Value
FV = Future Value
i = rate
n = number of years or periods

Present Value (PV) Example

Jim Bob has just won the lottery. He has the choice of accepting the $2 million now, or he can accept $1 million now and another $2 million 5 years from now. Which of the choices should Jim Bob take? Assume a rate of 8%.

Option #1 PV = $2 million

Option #2 PV = $500,000 + $1,361,166 = 1,861,166

PV calculation:
PV = 2 million/((1+.08)5) = $1,361,166

Option #1 is better because it is worth more to you today than the present payment plus the payment at the end.

If you want to increase the value of your organization, then click here to download the Know Your Economics Worksheet.

Present Value (PV)

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Present Value (PV)

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Cash Flow Projections

See Also:
Cash Flow After Tax
13 Week Cash Flow Report
How to Produce Realistic Sales Projections
Optimistic Projections
Why Most Sales Projections Fail

Cash Flow Projections

Financial statements are the basic building block for understanding how a business is doing. They provide management a way to assess the results and consequences of past decisions. However, because financial statements reside in the past, they are of limited use when used to forecast the future. While there does not exist a fool-proof way to forecast the future, there does exist a reasonable best-guess method to forecast how things may turn out. This is where financial projections come in.

Like historical financial statements, there are 3 basic financial projection reports: Projected Income Statement, Projected Cash Flow Statement and Projected Balance Sheet. Dynamic cash flow projections model is an important tool for managing your business.

Most professionals will produce projected income statements. Some will produce projected cash flow statements. However, few will do projected balance sheets! A complete set of financial projections is very important to keep and maintain.

Download The Know Your Economics Worksheet

Income Statement Projections

A projected Income Statement provides management an idea of how the company’s profitability will look 12 months into the future. This projected profitability rests in large part on management’s ability to forecast industry and customer demand, costs, as well as many other macro and micro economic factors.

Cash Flow Statement Projections

The cash flow projections provides management with an idea of how the firms liquidity will be impacted given the business assumption inputs for the Income Statement projection. The projected Cash Flow Statement seeks to answer the following questions:

Balance Sheet Projections

The projected Balance Sheet allows management to know the state of its asset, liability and equity base. As business expands or contracts so too will the firm’s assets, liabilities and equity. The projected Balance Sheet allows the company to project debt levels and covenants.

Cash Flow Step by Step

In order to successfully create financial projections, gather a variety of information. It is important to obtain the most recent and up-to-date information as all projections of the future are grounded in the past.

In other words…Garbage In Is Garbage Out! Done correctly, you will only need to do this once. However, if you come to find out that there are pieces of information missing, you may need to adjust accordingly. Someone in accounting, preferably a person who has access to the most current financial statements.

Income Statement Projections

After you have finalized the entries for the assumptions page, the next task at hand will be to tackle the Income Statement projections. Of all the projections you do, this is one that receives the most attention. The Income Statement projection can serve as a budget as well as a tool for management to analyze various business scenarios.

Want to check if your unit economics are sound?  Download your free guide here.

accounting income definition

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Cost Volume Profit Definition

See Also:
Prepare a Breakeven Analysis
Contribution Margin
How to Prepare an Investor Package
Capital Asset Pricing Model CAPM
Net Profit Margin Analysis
Cost Volume Profit Formula

Cost Volume Profit Definition

A cost volume profit definition, defined also as the CVP model, is a financial model that shows how changes in sales volume, prices, and costs will affect profits. Use the CVP analysis for planning, making projections, and for decision-making purposes. A CVP model can be used to calculate a breakeven sales volume. CVP analysis can also be used to figure out the sales volume required to reach a certain target profit.

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Cost Volume Profit Explanation

Cost volume profit, explained below, is one of the many ways to measure changes in the financial health of a company as it relates to sales. A CVP model is a simple financial model that assumes sales volume is the primary cost driver. In order to create a CVP model, you need certain data for the fiscal period in question. You need an estimate or figure for fixed costs, unit-level variable costs, and product/unit sales prices.

Cost Volume Profit Examples

For example, let’s take a movie theater in reference to a simple cost volume profit analysis. The theater has quarterly fixed costs of $30,000. These include utilities, salaries, and rent/mortgage, etc. The variable cost per movie ticket is $2. This includes the cost of paper, printing, and the custodial services, etc. The price of a movie ticket is $7.

Three variables:

1. Fixed costs of $30,000
2. Variable costs of $2
3. Sales price of $7

Now, using this data, we can calculate the breakeven point for the theater. Once you have this data, calculating the breakeven point is easy. First, compute the contribution margin per ticket. The contribution margin is the sales price minus the unit-level variable costs. Then find out how many tickets the theater must sell in order to cover its fixed costs. To do this, divide fixed costs by the contribution margin per ticket.

The CEO's Guide to Increasing Profits: 5 Steps to a Profitable Business

cost volume profit definition


Hilton, Ronald W., Michael W. Maher, Frank H. Selto. “Cost Management Strategies for Business Decision”, Mcgraw-Hill Irwin, New York, NY, 2008.

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