Few business metrics are as important — or insightful — as cash flow. It tells you if you’re bringing in more than you’re spending and how efficiently you’re operating.
If you look closer there’s even more to see, such as how well you’re poised for future growth. Especially if you make a cash flow forecast a routine part of your financial analysis.
PayPie’s insights and analytics demystify cash flow projection. We’re a cash flow superhero. What was once a time-intensive foe is now just a few simple clicks. Our interactive dashboard provides a detailed breakdown of key financial variables — using the current financial data in your accounting software.
What can you learn or take away? Here’s our list of the top five things every business gains from using our intuitive cash flow tools:
1. Know your cash flow
A dollar’s a dollar. There’s a reason why cash flow is an unbiased and universal measure of business performance.
It’s a make-or-break metric for businesses of every size — but it’s particularly crucial for small- and medium-sized enterprises (SMEs) whose survival depends on the income earned from operational cash flow.
When these businesses fail, more than half, 60% cite issues with cash flow as a root cause. Furthermore, most SMEs only have enough working capital on hand to cover 27 days of expenses. However, businesses who monitor cash flow on a monthly basis have an 80% survival rate.
The facts speak for themselves. Keeping an eye on your cash flow shows you what’s actually going on within your business. Your cash flow statement and cash flow forecast tell you: where the money coming in, where’s it’s going out, and the rate at which it’s moving in either direction.
PayPie’s cash flow forecast and analysis helps you see the patterns in your cash flow — showing you what’s happening now and providing a solid indication of what will happen in the near future. It’s like looking both ways before you cross the street. If you take the time to assess your current situation, you’re much less likely to get hit by that bus you never noticed.
2. Identify strengths and weaknesses
Spreadsheets only tell a part of your company’s story — especially if you’re a visual learner, as most people are. Plus, few spreadsheets can show you the true story of your company’s efficiencies or clearly illustrate your revenue cycles. After all, the best way to notice a pattern is to see it mapped out in graphs and charts — rather than numbers and percentages.
Routinely performing a cash flow forecast and analysis can help you see:
- If there are concerns within your accounts receivable and payable processes, such as consistently late payments or mistimed cycles.
- Where your efficiencies and inefficiencies lie, in terms of:
- How your revenue correlates with expenses.
- Your best sources of recurring revenue.
- Your last effective income streams.
- How to plan for seasonal upturns and downturns.
3. Determine your financing needs
When you have a good handle on your cash flow, you not only know where your business stands, you also have a pretty strong idea of where it’s headed. As a result, a cash flow forecast helps you better plan for when you’ll need funding to seize upon growth opportunities or simply upgrade or maintain your current status quo.
To put it simply, when you know how much money you’re earning, how much your spending and when this money is being paid to you or is due to others, you have a much better handle on when you’ll need access to more cash or be able to repay lenders. No one likes a fire sale or being at the mercy of high-risk lenders.
Being prepared means knowing your choices. It gives you the chance to learn about and choose from either traditional or non-traditional lending options (or a mixture of both long- and short-term options). In fact, traditional lenders, such as banks, will even take a cash flow forecast into consideration as part of the application process. And once you’ve acquired financing, forecasting will help stay on track with your repayments.
4. Build better financial health
Just as a fitness tracker helps you build better health habits — a cash flow forecast helps you monitor your business’ financial vital signs. Our intuitive dashboard gives you robust analytics in easy-to-digest formats, making it simple to track your business’ overall fiscal health.
Is managing a business a lot like running a marathon? Sort of. In essence, the principle is very much the same. You make a plan, set goals then compare these targets with actuals. For example, if you’re working on a goal of lowering payment times from net 60 to net 30, your cash flow forecast will help you track your progress. Or, if you hit a wall, it’ll help you figure out why and how to push through whatever’s holding you back.
Routine cash flow forecasting and analysis also helps you create and refine a cash flow budget (training plan)— establishing a range of benchmarks to compare with actuals.
Our proprietary risk score, featured prominently within the dashboard, is a flagship indicator of financial health. It’s a comprehensive assessment of the determining factors prospective lenders, vendors and other third parties take into account before offering financing or extending credit.
5. Make data-driven decisions
Financial planning and business strategies are only as good as the data that drives them. Both require constant refinement, which you should always base on performance metrics and data. If you’re not iterating on your business tactics, you’re falling behind. And if you’re not using data to inform and evaluate decisions, you’re charting a course in the dark.
Confidence comes from knowing you’ve done all the hard work and you’re ready for what lies ahead. When you’re wearing the many hats of a business owner, every tool that gives you an advantage is a win. This is why we’ve created our cash flow forecast and analysis in the first place. To empower you with the information needed to point your business in the right direction.
Empower your business
Ready to put your data to work for you? All you have to do is create a PayPie account and connect your accounting software.
Want to learn more about cash flow? Here are some of our top posts:
- Cash Flow Basics: Key Concepts and Terms
- How to Read a Cash Flow Statement
- Cash Flow Forecasting: What You Need to Know
- Why You Need a Cash Flow Statement and Forecast
- 5 Stories Your Financial Statements Tell
- How Cash Flow Consulting Helps Businesses
At the writing of this article, PayPie currently integrates with QuickBooks Online. Integrations with other platforms are in development.
The information in this article is not financial advice and does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.
Images via PayPie and Pexels.