Let’s face it, we don’t like having budgets that aren’t on target, given the serious consequences that could come as a result. It isn’t all bad news though as most companies never put themselves in that position. Even with all the current factors impacting on small and medium sized businesses such as the fluctuations in the economy & redundancies, having a strong financial clarity isn’t such a bad idea.
With this thought in mind, if we mutter the words ‘a cash flow forecast’ what does that mean to you?
To give you some clarity on this, here is a definition:
“A cash flow forecast is a plan that shows how much money a business expects to receive in, and pay out, over a given period of time”.
Now that we have defined this term, it does make logical sense for businesses to have a cash flow forecast perfectly aligned with their business processes but does this happen? Let’s look at this in more detail!
Are all SMEs completing cash flow forecasting?
Although logic dictates that having an accurate estimate of your future cash outflows and inflows does make sense, more often than not, this is often overlooked by SMEs. There are a number of reasons that SMEs give for not having this in place:
- The business isn’t able to automate cash flow forecasting.
- The staff don’t have time to prepare one.
- The lack of accuracy in previous forecasts hinders future ones being completed.
No matter what justification is given by SMEs for not completing one, having a healthy cash flow is vital across all businesses, so there is no reason not to do one!
So why do businesses want to estimate both their future cash outflows and inflows?
It’s safe to say that 99% of senior decision makers in a business would rest easier knowing that they have an accurate way of forecasting the liquidity of the business over the course of the next quarter.
There are a number of ways in which an SME could benefit from completing regular cash flow forecasts, some of these include:
- It can help to reduce the risk of insolvency – by ensuring that the business has a clear roadmap in place to highlight any potential liquidity issues will allow senior managers to make decisions early.
- It can allow you to take advantage of investment opportunities quicker – if you have an accurate cash flow forecast in place which shows favourable cash surpluses in the coming months then you can plan new ventures/acquire other businesses.
To put this into context, highly accurate cash flow forecasts are extremely helpful and valuable to senior management. However, if finance departments are scared of putting in the additional work required to both plan and perform an accurate cash flow analysis, how can businesses still get this forecast completed?
So how do you automate cash flow forecasts in your business?
Like with many things across businesses, technology can help automate labour intensive tasks. The same can be said for cash flow forecasting which is part of a cloud software category known as Corporate Performance Management (CPM).
In terms of the benefits that can be achieved through the use of CPM can include scenario forecasting to enable a business to accurately predict ‘great’, ‘good’ & ‘bad’ scenarios which allows senior managers to plan accordingly. Furthermore, CPM solutions can provide a business with a driver-based forecast process capability which allows forecasts to include assumptions that can automate and simplify the creation of a number of useful forecasts such as cash flow, expenses, sales & much more.
Furthermore, you will find that a high percentage of executives across SMEs believe that highly efficient & accurate cash flow forecasts can be highly advantageous to their business. When in uncertain times or during a global pandemic, cash flow forecasts can help reduce the risk of running into financial difficulties and improve the chances of being able to take advantage of any potential investment opportunity as and when they arise. No matter what motivation, there are plenty of tools available to make your day to day job easier via automation and simplifying many financial planning processes.
Next Steps?
If you are a small and medium sized business looking for the complete corporate performance management solution to help simplify financial planning processes and much more then please get in touch with our team of experts today to discuss how we can help your business.
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