“One full time accountant in charge of the cash flow statement” is what we recently heard from a family office. Granted, that family office has 100+ entities, but it is representative of what most family offices have to live with day to day. The reason for such resource allocation: E.X.C.E.L., the most commonly used tool to build such statements. 

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Creating cash flow statements in Excel might seem archaic, especially for sophisticated family offices. The cash flow statement is the backbone of a family office’s financial management. It details the inflows and outflows of cash but in a way that makes sense for the family. GAAP cash flow statements don’t work well as they don’t easily answer the question: Where did the money come from? Where did it go? Starting from Net Income is simply a faux-pas. 

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Family office accountants depend on this statement almost daily. It’s critical to their operations because poor cash management could result in the family office failing to honor loans, meet capital commitments, cover personal expenses, or make use of extra cash on hand. From our survey, we've found that these Excel files are updated almost daily, with a comprehensive review meeting held at the end of every month. It is the statement that buys family office staff peace of mind when not too complicated to produce. 

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As pictured above, the issue with a cash flow statement in Excel is the amount of manual work and reconciliation needed to ensure a version that works across the many entities each family has. Let’s break down the typical structure of a family office cash flow statement:

1. Beginning Balance: Ties to the balance sheet and gives a snapshot of the cash across all accounts.
2. Source of Cash: Details where the money came from, such as dividends, interest, or asset sales.
3. Use of Cash: Shows where the money went, such as investments, loan repayments, or operational expenses.
4. Ending Balance: Ties back to the balance sheet, ensuring everything balances out.

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While easy to produce with some re-work if you are in QuickBooks (typically downloading the P&L if you are on a cash basis), the task becomes that much harder with multiple ledgers. Not only that, but the set up of the cash flow accounts can also be complicated: a common dilemma is handling accounts with both inflows and outflows. Should these be netted together or listed separately in both sections? Family offices value flexibility, but that flexibility creates a lot of manual computation. 

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Unlike Excel, with family office software like SumIt, users have the cash flow statement ready out of the box and can customize how transactions are displayed, whether netted or not. This tailored approach saves time and reduces the potential for errors, making financial management more efficient.