Importance of Excel-based cash flow forecasting in financial planning and analysis

- [Instructor] In this course, we'll follow a confectionary company, a candy company named Barrington Chocolate. The company makes and sells high-end artisanal chocolate treats like truffles, candy bars, toffee, and biscuits. It's an exciting time to work at Barrington. It has three locations in Chicago, New York, and Miami, and it's growing rapidly, given its partnerships with companies and sports teams for their big events and holiday gifts. The owner, Leslie Barrington, is excited about the future, but she's also nervous. She's a pastry chef at heart and by trade, not a finance expert. She's never run a company of this size. She wants to be sure that she grows intentionally and has a good grip on her cash, the fuel for her business. cash flow forecasting isn't easy even for most finance people, and so this course is going to be a challenge, but by the end, you will have built a cash flow forecast for Barrington Chocolate, building Leslie's confidence and helping her get to the next level. You'll also be able to leverage and transition the model we build together over to your own company or to your work with clients. So why focus on cash flow instead of the income statement for profitability? Because the cash flow forecast provides real time and forward-looking views of financial stability. For one, it helps avoid liquidity crises. Companies that are profitable on the income statement, like Leslie's, fail if they run out of cash. A cash flow forecast helps anticipate shortfalls before they happen. Improving decision making, knowing when and where cash is coming from and going, allows for better planning. If you don't know these sources and uses of cash for this chocolate company, you're walking in the dark. You're hoping for the best and assuming you won't trip and fall, but hope is not a good strategy. Understanding operational timing, cash flow forecasting helps align payment cycles with receivables collections to ensure working capital efficiency. It lets you know how much short term financing you might need to cash flow the business. Assessing business viability. If you've ever listened to an earnings call, investors obviously care about how much money the company is making profit wise, but you'll almost always hear them talking about cash flow when evaluating financial health and future opportunity. They want to know how much cash flow the company can dedicate to new growth initiatives and ventures. If this chocolate business is going to expand, we need to know how much cash it's going to require, when, and where it will be used. While the profit and loss statement, or P&L, shows sales and profitability, top line revenue and margins don't always translate into a company being healthy. The company may be delaying payments to its suppliers, taking on loads of debt, selling off assets, and struggling to collect cash from its largest customers. On the P&L, those activities, they don't even show up. And while the balance sheet does help in illuminating the financial health of a company, the balance sheet focuses on financial position, not so much financial movement. A balance sheet shows the amount of cash that a company has at a given time, but it doesn't indicate how much cash is coming in, how much is going out, and whether there is enough cash to cover upcoming expenses. These financial statements don't show when customers will pay invoices or when suppliers and lenders expect to be paid. That's why cash flow forecasts matter because they help model actual cash movements and help businesses plan ahead. A cash flow forecast, especially one that's in Excel, allows businesses to model different assumptions, growth rates, expense fluctuations, changes in payment terms and more and we get to see in real time the precise impact on cash. Many companies spend thousands and sometimes even millions of dollars on sophisticated financial software, but even with this extra computing power, Excel continues to be one of the most widely used and trusted tools for cash flow forecasting. Why? Because it provides unmatched flexibility. Unlike many prebuilt financial tools, Excel allows complete customization to fit your unique needs and business models. You can get Excel to do exactly what you want it to do to manage your cash flows more confidently. Universal accessibility. Nearly every finance professional knows about Excel and most know how to use it to some degree. There's no need to sign up for new software licenses or lengthy onboarding to get people up and running. Seamless integration. Even if companies want more powerful finance software, most of this software exports to Excel or CSV files, making it easier to adjust assumptions and update forecast in real time. Powerful analytical capabilities with baseline functionality. Functions like sum ifs, index match, choose, and scenario analysis tools, enable dynamic, data-driven forecasting without needing to over complicate the process. And finally, cost efficiency. Many finance tools require subscriptions and maintenance, which can be expensive, but Excel delivers robust forecasting and analysis capabilities at a fraction of the cost.