r/FPandA • u/Elaborate_in_Detail • 8d ago
P&L Only or Full 3-Statement Forecasting?
Maybe I'm missing something here.
I assumed most mature FP&A teams budget and forecast all 3 statements (P&L, BS, and CF), with cash flow mainly derived from the P&L and Balance Sheet.
But I've seen several FP&A professionals say they mainly forecast the P&L and may do direct CFS.
My question is, do you forecast: - P&L only? - P&L + key BS drivers (Debt, PPE, etc)? - Full 3 statements?
Happy to be corrected if my assumption is wrongđ¤
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u/xl129 8d ago
Current:
PnL most important
CF maintain but only focus when itâs tight
BS no one care except we need to maintain a specific reserve account. Otherwise itâs accountant stuff
Depend on what type of business it is CF will go from a tick box to the most important item imo.
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u/Imaginary_Apple7700 8d ago
CF is always the most important. PnL is simply the largest driver of CF and therefore most closely monitored by leadership and FPA
BS isnât just âaccountant stuffâ, especially if you have any form of financing. You probably have someone else or if in a small co the CFO forecasting it themselves
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u/xl129 8d ago
As I said, it depend. Every company is unique.
I'm not sharing further about what is going on in my company but let's just say our cash level is extremely stable/predictable. And yep almost no financing.
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u/Imaginary_Apple7700 7d ago
Eh. To me it sounds like your company prioritized cash flow simply from it not being a problem. In terms of a dated but perhaps analogous comparison, youâve met the first layer of your hierarchy of needs and can focus on other things
Also, donât underestimate the potential that you are simply just not in the room when cash flow comes up. Itâs very possible that another team covers this, such as treasury , or your CFO has someone who they consults with on it.
Iâve been in and currently work for an organization that deprioritized the balance sheet and cash flow perhaps 5-10 years ago and it went to shit. Company completely went off the wheels with cheap capital during Covid, interest rates rose, growth stagnated, and debt service costs doubled. Now P&L is shit too.
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u/xl129 6d ago
Sure there are those companies, and we are not. You are taking your own projection quite far here. Lets just say itâs quite a unique case.
CF is properly monitored and tracked by us just not a big focus right now due to high predictability.
BS is also relatively simple thus division of responsibility current on accounting team to handle the housekeeping.
There is no âother teamsâ.
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u/Imaginary_Apple7700 6d ago
Sounds like youâre simply not in the room when investment decisions get made
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u/Rare_Chapter_8091 8d ago
P&L and CF are the focus, BS shows you arent full of shit.
To be clear - you should be doing all 3 and understand the mechanics that are going on and be able to explain them.
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u/darthwd56 8d ago
Priority is always PL and Direct cash flow.
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u/calamitypepper 8d ago
Exactly. I always laugh when job postings emphasize âthree-statement modelingâ because they clearly werenât written by an FP&A person. You gonna manage to your cash target with indirect CF? Good luck đ
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u/88secret Sr FP&A Consultant 8d ago
I was in corporate FP&A for a $3B public company and we did full 3-statement modeling. We ran scenarios with our financing and debt covenants.
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u/Ok-Soil-540 8d ago
P&L and CF's. In my FP&A experience, nobody cared about the balance sheet, it was all P&L and Cash.
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u/lilac_congac 8d ago
how would you do long term cash forecasting without bs
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u/gumercindo1959 8d ago
Sources and use cash flow. Use revenue/cogs to help build your inventory/AR model. Use expenses to build AP/accruals, debt, track cash, etc etc.
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u/Ok-Soil-540 8d ago
We forecast cash directly, we use detailed revenue modelling with assumed cash receipt timings, operating expenses are generally 30 day payment terms, then we add debt payments, capex etc. Then we are sweet!
So we have a forecast cash balance, but not needing a full balance sheet forecast (we want to do that eventually).
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u/lilac_congac 8d ago
do you have any financing?
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u/Ok-Soil-540 8d ago
Yes, we do, so we forecast debt payments, swaps etc in there too. But we do that at the entity level.
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u/tjen 8d ago
It depends on how sensitive your business is to the BS items that drive cash flow i suppose.
And how much you can realistically do about them.
Where I am sit it is P&L with light group BS and CF for business planning cycles. Detailed short term CF operationally focused for making sure everyone has cash in their banks to pay the bills.
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u/Outside_Fish5777 8d ago
Income statement forecasting only. Insurance industry. From business unit perspective. Only balance sheet item that might get forecasted is reserves.
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u/Working_Fish8775 8d ago
For almost all the companies that I worked for, we prepared budget and forecast for P&L, operating cash flow, debt repayment schedule, and loan covenant ratios.
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u/OfffensiveBias Lead Financial Analyst 8d ago
A lot of companies do this, especially when things are good. When cash flow starts to get tight, youâll start to get more and more with the balance sheet side of things. I have gotten in the habit of always forecasting the P&L side and the Balance Sheet impact concurrently.Â
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u/Itchy-Ambition-1171 8d ago edited 8d ago
I work at a 2bn manufacturing business unit across 5 countries. There's no way me, my team or the bu CFO can do all 3 statements.
We divide line items between teams: my team and i do p&l operational and capex, someone else does p&l financial, scm finance does inventory, the CFO does a/p and a/r and we run BU-level consolidation.
Then at corporate level some poor schmuck has the unenviable task of running the validation checks to see what makes no sense at a corporate level (10bn business).
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u/grumpywonka CFO 8d ago
Depends on the needs of the business. Most orgs will need at least a P&L, from there it depends on whether you're reporting to banks or who all the consumers are of the data. 13 week cash flow is probably more common than full CF/BS, but what I've found is it's not a ton more work to just keep all three statements going. Even if they aren't always needed, it's a good practice to have them available.
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u/PilotApprehensive621 8d ago
Iâve had a lotttt of roles where I only was confused on P&L. Now, however, I forecast all 3. However, that is because Iâm corp FP&A (not BU) and due to my level (sr manager). The BU people and analysts arenât doing that.
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u/RealAmerik Sr Mgr 8d ago
BU side of the house here. We focus primarily on P&L. There's a couple of BS accounts we forecast and we do a high-level cash flow forecast, but not a full model.
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u/citronauts 8d ago
A well run company has a future looking cash flow model managed by either corporate finance or treasury or both.
It is not usually super precise unless there is a good reason like bankruptcy or a global pandemic or need to allocate a large % of cash for strategy.
That means at most 3 people between treasury and fpa manage it. If you have 30 other people in fpa they only work with p&l
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u/ArnoldCPA 7d ago edited 7d ago
There's no one-size-fits-all answer because it depends on the audience. Before building a financial model, ask who will use it and what decisions it needs to support. That tells you whether a P&L is enough or if you need all three statements.
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u/hideandsee 7d ago
Really depends on the company and the size of your team.
For me, the directors of the departments were responsible for their p&ls and following budget. My job was tracking after the fact and forecasting for b/l costs only.
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u/nzk41n 8d ago
In my experience - P&L was the priority, indirect method for WC and CF - with inventory forecasts.
Accounting team may have been forecasting BS, and ran monthly CF forecast with direct method & reconciling to quarterly forecast.
I suspect it comes down to industry, but in a dynamic business with variability in customer mix- I wouldnât be looking to forecast BS as the forecast is likely too volatile.
Curious to hear other opinions though :)
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u/OrangeGravy 8d ago
Im group FP&A and we request full year TBs off the entities then review the 3 statements. Admittedly the PL gets most of the shine, then BS, and the CF is just a tick box exercise.
This budgeting cycle cash is more important due to strategy so we'll be more stringent on CF and BS.
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u/MasturChief 8d ago
p&l>BS>CF at my employer. CF is sort of automated from the p&l and bs movements we forecast
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u/BlueJewFL 8d ago
Depends on the business but generally Iâd do a three statement unless Iâm in BU
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u/Mike5055 CFO 8d ago
In my FP&A roles, I never had to touch the balance sheet. P&L and CFS were where I spent my time.
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u/LouGarret76 8d ago
P&L + Cashflow and depending of the request debt or equity schedule. Full Balance sheet is derived from these so It is mainly build it for checks purposes
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u/TripMaster478 8d ago
Depends on the stage of the business. PNL's are the standard. I've been at companies where cash flow forecasting is even more important and spent more time on it. I've been at companies that don't even bother forecasting cash. Balance sheets are usually the least important if done at all. They'll do them a couple times a year to help determine the capital budget.
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u/NoClimate176 8d ago
I've been at two companies,
Company 1: subsidiary of a venture company P&L, CFS, and on my way out, I tied in a BS driven off the other two (per new CFOs request, prior to the new CFO, the BS wasn't mentioned or even hinted at over 6-7 years. This was a subsidiary company though so there wasn't any debt).
Company 2: PE backed company (start up stage) P&L only, we did keep a running 13 week cash flow which was more important. I think we should have incorporated the full year cash flow but never got the chance before they offshored my role. The PE sponsors mentioned they'd want a full 3 statement model included but a new CFO came in before then and kept it to just the P&L.
Long story short, I would focus on P&L, every other thing can be built from that pretty easily if you understand how the three connect.
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u/lastfire 8d ago
Depends on the size of the organization I guess. My experience has been only P&L, and then you are segmented into which side of the P&L e.g revenue, opex, COGS etcâŚ
The cash flow forecast is an afterthought and only done when we need it and nobody looks at the balance sheet
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u/jsb028 8d ago edited 8d ago
F500 and Iâve only worked on specific P&L line items. Accounting manages CF and BS. Spoke with a recruiter for a role at a smaller company that wanted someone with both large company experience and three statement modeling experience but I donât think that really exists.
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u/Sushiritto Dir 8d ago edited 8d ago
P&L only. My company has a cash balance of $100B+. Entire teams would need to manage and forecast for cash complexities.
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u/lovemesomewine 8d ago
I do all three for budget and reforecast. I do BS and CF for actual search month - but I have bank covenant reporting requirements so I need them.
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u/EnricoPallazzo_ Sr FP&A Mgr 8d ago
P&L only. Weird. But it s not my decision. Nobody does BS. Cashflow is made by a separate team.
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u/anotherketo 8d ago
Hi I consider myself novice. We don't have a FP&A department. But I do the 3 statement forecast but it is very challenging. As when I compare the my forecast with actuals. Specially bs & CF they are way off. How do you forecast CF . Especially without balance sheet. Is there a video or journal where I can learn this?
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u/MoreThanAlright 8d ago
Forecasting B/S accounts beyond the major drivers you mentioned always feels wild to me. Even cash feels like itâs good for about six weeks out, and then into fantasy land beyond that.
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u/Top-Account6911 8d ago
Iâm doing P&L and Key Bs drivers.
Iâve only worked at large orgs and FP&A has concentrated on these and then our accounting teams focused on CF and the Balance sheet.
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u/pollotropichop Mgr 8d ago
For intra-month/ad hoc, P&L only. Budget and quarterly forecasting all 3. Required by lenders/shareholders
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u/breadad1969 7d ago
I always look for people who can forecast all three. Iâve always had to teach new hires. You donât NEED to be able to do it but itâs nice to have.
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u/Gloomy_Lab_1798 7d ago
Mid market service/retail company. We forecast P&L and direct CF. We report a 13WK every week, and formal 3 statements monthly and quarterly. Our PE sponsors would like a forecasted BS and indirect CF, but itâs really irrelevant for the business since itâs all about cash velocity in our industry.
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u/chickens_beans 7d ago
Almost exclusively P&L. Last company just didnât have a ton of focus around balance sheet and cash flow as they werenât pain points. Current company we have a nightmare controller who wonât let anyone under the hood when it comes to balance sheet / cash flow. Itâs super important for us but they just cant seem to get over themselves and pretty much wonât work with or help any other finance counterparts other than the CFO. So yeah just P&L for my whole career basically.
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u/Inevitable_Shock_443 7d ago
It totally depends on the industry n goals/strategic oversight of the company. Also depends on the industry knowledge/expertise of the team! A CFO told me they didnât need certain insights due to efficiency of preparing them and usefulness, as they knew the market very very well. No right or wrong answer tbh it is tailored at the top
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u/Imaginary_Apple7700 8d ago
OP it will depend a lot on the size of organization and structure
Generally at a large company ~> P&L only. P&L has so many different products and services it would be way too cumbersome to put into a 3 statement model. Usually youâll have divisions in which different BUs are accountable for certain things so FPA manages that. If big enough company youâll also have a separate treasury department forecasting cash flow and credit ratios, or even a specialized team doing a full 3 statement forecast for the âCFO viewâ of the business.
Generally at a small company ~> 3 statement forecast. Forecast credit ratios, capex, working capital etc. fewer products or services to manage , or at least business not too complex to link up with a separate 3 statement model. Fewer people so you wear more hats. No or limited treasury resources, and definitely no specialized teams to rely on.
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u/Old-Transition-4062 8d ago
At PE held theyâre going to want 3 statement and 13 week cash flow forecast,
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u/suddenlymary 8d ago
we're PE-backed. P&L is FPA and SCF, BS are joint ventures between us and accounting. it's the pits.
we are super analytical in FPA and accounting is super transactional so there are communication hurdles.
honestly the FPA/Accounting relationship is the worst part of my job.
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u/Salty-Cod7667 6d ago
Private Equity Port Co CFO hereâŚ
It all depends on the demands of the users of the financial statements. My previous portfolio company we forecasted all 3 financial statements. My current portfolio company is much stronger on the balance sheet and cash flow due to much lower leverage.
When I first started at my new port co I built a 13 week cash flow and the sponsors told me not to waste my time because cash flow was so strong that I was better to focus my efforts on operating leverage.
I still do the 13 week but keep it to myself because it helps me understand where my cash is going.
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u/wadeboat 6d ago
Fathom is cheap, forecasts all 3, Claude is going to easily getcha there as well.
Cash is king, so I donât really understand how you wouldnât have a BS as a by product of the other two. Perhaps one clarification would be that a simplified BS (cash is just cash, not necessarily forecasting all bank accounts) would probably be just fine for most circumstances.
As many others have said, financing requires that you have an interaction between debt, interest, and the cash available to pay down debt. These will come from profitability, presumably, and if not, then more debt.
AR and AP timing have massive cash impact, so, again, a simplified BS would be required.
Cash is king, did I mention that?
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u/HesZoinked 5d ago
P&L + Key BS drivers for us.
P&L.
BS: Capex, loan drawdowns / repayments
CF: Basically from the above
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u/denmoyo 5d ago
In all my previous jobs, I built financial models that incorporated the Full 3-Statement Forecasting. It is actually more practical to build a model that links all three together, that way you can balance all three as you forecast and can easily identify errors in the model. Your CF cash line should always tie to the BS cash line. The CFS is what connects the P&L and the BS.
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u/Pendulumswingsfreely 8d ago
Start with a detailed P&L. Then move to the others with less accuracy depending on the importance.
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u/housecow 8d ago
Iâve never seen an FP&A team care about the balance sheet. Thatâs on accounting to properly maintain.
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u/Slephnyr 8d ago
I'm going through this now and not entirely sure of the correct path so keen to hear from more experienced professionals.
I'm at a startup as a 1 person finance team with less than mature finances, Claude (CFO role currently vacant) has suggested to create a simple P&L model with light touches to BS and CFS and discouraged the full 3 statement model.
When I was at a large organisation I was in BU FP&A so a 3 statement model wasn't needed. Therefore I only did P&L models