Don’t Forget About the Cash Flow

Why Should You Optimise the Cash Flow Management? 

A critical yet often overlooked part of the financial processes is the cash flow. However, my best advice is – don't forget about it! By integrating your liquidity forecast with the company's regular forecast, you can optimise your business's liquidity. This is particularly important for rapidly growing companies that need to know how long their liquidity will last, but also for established companies that want to avoid tying up too much of their liquidity. Every company forecasts their P&L to get an outlook of the future, but to get a proper foundation for strategic decision-making you also need to analyse the liquidity and understand the impact of various decisions, especially in a rapidly changing world like the one we've experienced in recent years. 

During the COVID-19 pandemic, we observed that few companies worked with integrated liquidity forecasts. This resulted in significant challenges regarding the liquidity when the market changed rapidly and often. Many companies lacked either the right expertise or enough time to work with these forecasts effectively, since it’s both time-consuming and complex to do manually in Excel. Since then, we’ve observed a growing trend of companies wanting to implement (and some have already implemented) automated cash flow systems, which offer advantages in both efficiency and decision-making. 

5 Reasons to Automate Your Process

Forecasting the cash flow manually means constantly aiming at a moving target. One simple adjustment in the P&L requires updates to both the balance sheet and the cash flow. This can make it feel like you're always moving one step forward and two steps backwards. With an FP&A (Financial Planning & Analysis) system, the P&L, balance sheet, and cash flow are all linked into an integrated and automated process. This means that you don't need to update all parts of the process manually just because you’ve updated one. Below we list 5 reasons to automate your processes! 

1. Long-Term Analysis 

By implementing robust cash flow analysis, you can ensure that the company always has sufficient funds to cover its immediate and long-term needs. An FP&A system can help forecast cash flows and find periods with potential liquidity shortages, allowing you to plan for financing needs in advance. 

2. Dynamic Budgeting and Forecasting 

With the help of an FP&A system, you can create dynamic budgets and forecasts that give you updates in real-time based on changes in the cash flow. This allows you to respond quickly to market changes and adjust your financial plans accordingly. It's especially important for managing unforeseen expenses or revenue losses. 

3. Simplified Evaluation Processes 

A strong focus on the cash flow enables you to evaluate investment projects more accurately. FP&A systems can simulate different scenarios and their impact on the cash flow, helping you to make well-informed decisions about which projects to prioritise. This reduces the risk of investing in projects that could jeopardise the company's liquidity. 

4. Risk Management 

An FP&A system enables you to create various worst-case scenarios and analyse their potential impact on the cash flow. By modelling these scenarios, you can develop strategies to manage risks, such as economic downturns or changes on the market, thereby protecting the company's financial stability. 

5. Strategic Decision-Making 

With detailed real-time data on the cash flow, managers can make more well-informed strategic decisions. This includes decisions about expansion, new product launches, or market expansions. FP&A systems offer a holistic view of how such decisions could affect the company's financial health in the short and long term. 

How to Optimise and Automate

Working with automated cash flow management is not only efficient for the financial processes but also crucial for making well-informed decisions in a dynamic business environment. As mentioned above, with a modern system, you can link the P&L, balance sheet, and cash flow in a driver-based manner. With driver-based elements for costs and revenue, you gain control over the forecasted P&L and balance sheet. Adjustments and changes in the forecast automatically update the projected cash flow, ensuring everything is connected and you can see how each change impacts other processes.

With Planacy, you can easily manage different scenarios, compare historical cash flows, and create a better foundation for decision-making. This saves time and money, and reduces the need for manual work, which frees up time to focus on analysis and strategic issues instead of administrative tasks – allowing you to drive the business forward. 

Book a free product tour with one of our experts today and take the first step towards smoother and more efficient financial planning. 

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