As a small business owner, there are fewer metrics more important than your cash flows to measure your company’s financial health.
But for many entrepreneurs, forecasting cash flows remains one of the most challenging aspects of financial management. Using complex spreadsheet formulas to predict future cash positions is both time-consuming and hard to master.
Cash flow forecasting software can be a convenient and affordable alternative. Cash flow software takes the guesswork out of financial forecasting, providing business owners with clearer insights and more accurate predictions. Whether you’re founding a new startup, or have been running a business for years, understanding these benefits can help you avoid cash crunches and better position your business for growth.
Here are five key ways that cash flow software makes financial forecasting easier for small businesses.
1. Automated data integration
One of the most powerful features of modern cash flow software is its easy integration with existing accounting systems. Cash flow software, for instance, sync directly with QuickBooks and Xero accounting software. Automations like these eliminate the need for business owners to enter data manually, taking human error out of the equation and saving you a ton of time.
By pulling in data from various aspects of your business — sales, expenses, accounts receivable, accounts payable — your cash flow forecasts are always based on the most up-to-date information.
And as your actual financial data changes in your accounting system, your cash flow forecast updates automatically. This ensures you’re always working with the most current information when making financial decisions, giving you a more accurate picture of your financial position than if you were working with manual spreadsheets. It’s not hard to see how the efficiencies of cash flow software can free up time for busy small business owners to focus on analyzing results and planning your business strategy.
2. Visual Reporting and Analysis
Another benefit of cash flow software is its ability to visualize complex financial data. Compared to reviewing years of numerical data in spreadsheets, seeing a business’s financial data represented in graphs, charts and dashboards makes it easier for a small business owner to spot trends and grasp their financial situation at a glance.
For instance, a line graph might clearly show that your cash reserves tend to dip during certain months, allowing you to plan ahead and adjust your strategies accordingly. Or, you might notice that your actual sales are consistently outpacing your projections, indicating it’s time to revise your cash forecast.
Cash inflows and outflows can be particularly tricky to grasp, largely because payments on credit, accounts payable, and other transactions may be represented differently on a cash flow statement than on a profit-and-loss statement. This is where cash flow software is really helpful. You can quickly toggle back and forth between your financial statements to see in real time how your cash position is changing as you run your business.
Another valuable feature of cash flow software is the ability to view your actual results side-by-side with your projections. This visual comparison makes it easy to see where your business is performing as expected, and where it’s deviating from the forecast.
3. Scenario planning capabilities
Considering a new product launch? Thinking about taking on a loan? Want to invest in a social media consultant?
One of the most powerful features of cash flow software is its ability to help business owners plan for various scenarios in their business. Using software allows for exploration of different “what-if” situations, and lets you map out how those different situations might impact your business’s financial future.
Instead of relying on a single forecast, cash flow software makes it easy to create multiple scenarios to prepare for various outcomes. This feature is particularly useful when adjusting forecasts for variables such as sales growth rates, cost increases, or payment terms, to see how these changes might affect your cash position.
For instance, you might create a best-case scenario where sales exceed expectations, a worst-case scenario where a key client is lost, and a middle-ground scenario that aligns with your most likely projections. You could also model how different pricing strategies or production costs might impact your cash flow, or how various repayment terms could affect your future cash position.
Running these scenarios through your cash flow software provides valuable assistance to plan more proactively and prepare for a range of possible outcomes, so you can make more informed decisions.
4. Industry benchmarking
Learning anything you can about the cash positions of businesses in your industry is crucial. If you’re forecasting a 20 percent profit margin in an industry where the average is 10 percent, are you truly twice as efficient as your competitors, or have you underestimated some costs?
This is another space where cash flow software can make a big difference. Cash flow forecasting software incorporate industry benchmarking capabilities into their platforms, allowing small business owners to compare their financial projections and performance against data from similar businesses in their industry.
The added context of benchmarks helps business owners avoid creating unrealistic financial forecasts in a vacuum. Owners can see how their profit margins, cash flow cycles, and other key financial metrics stack up against industry averages, helping assess if projections are realistic or might need to be adjusted.
The implications here are considerable when seeking bank funding or an investment. Lenders and investors will be looking for business plans and forecasts that show potential for growth, but are realistic based on the industry and market an owner is operating in.
5. AI-powered insights and suggestions
The integration of Artificial Intelligence into cash flow software is creating new opportunities for small business owners to identify trends and make data-driven decisions.
Tools like AI-driven monthly financial review can analyze cash flow patterns, detect trends, and alert owners to anomalies in their financial data. For instance, it might notice a gradual increase in late customer payments, and suggest implementing stricter credit policies, or offering early payment discounts to improve cash inflows.
By highlighting potential issues that might not have been apparent to the business owner, AI cash flow features can help them act on potential issues before they become critical problems.