Success is not “all about the Benjamins” – but good financial decisions are the foundation for every business’s growth and prosperity. In a country where 25% of businesses fail due to cash flow, it’s more important than ever to have a solid understanding of how cash flow contributes to your business and how technology, like business intelligence (BI), can help keep your cash under control.
What is a Cash Flow Analysis?
Cash flow analysis is used for financial reporting purposes. By examining your company’s cash inflows and outflows during a specific period, you can see where cash is being generated and spent so you can plan accordingly. Control over your cash can not only protect your business during uncertain times but open doors to new opportunities.
Are you making or losing money? Whether you are a new start-up or an established enterprise, cash flow is critical at every stage of a business’s lifecycle. You need money for everything, from purchasing inventory to hiring a new employee. The key to achieving stability and predictability is to have the right processes and technology in place to help you manage and forecast your cash flow.
Common Approaches to Cash Flow Analysis
Most accounting teams are responsible for performing a cash flow analysis at the end of every quarter to ensure that all the company’s expenditures are accounted for. Your company might be profitable, but you could still run into financial problems if receivables become past due or uncollected.
One of the most useful measures in financial performance is Free Cash Flow (FCF). Analysts look at FCF, which is your operating cash flow minus your capital expenditures, to find out what money a company has left over to expand the business or return to shareholders. If your expenses exceed your cash, you’ve got a problem.
A cash flow statement is an essential tool used to manage cash flow that includes information from operations, investing, and financing. Traditionally, a cash flow statement is compiled using Excel-based manual data processing. When you are trying to aggregate data from your cash flow history, planned and actual operating expenses, capital expenditures, accounts receivables/payable balances, and general ledger data – it can get complicated.
We love Excel, but this approach is resource-heavy and time-consuming, to say the least. It can also lead to issues with data accuracy and report standardization, which is not something you want to worry about when managing your money.
Recognizing these implications, many companies have automated these manual accounting processes and embraced business management and intelligence technology for analyzing and forecasting cash flow more efficiently.
How BI Can Help to Better Manage Your Cash Flow
Now that the software is more accessible and affordable, organizations are adopting business intelligence technology to improve the way they manage their cash flow. BI and analytics software is used to help companies automate cash flow analysis and provide the tools they need to consolidate data, simplify cash flow planning and forecasting, and accelerate decision making.
The key selling point of BI software is that it’s designed to provide more accurate financial figures and ultimately, take the guesswork out of the cash flow analysis process. BI solutions equip managers with timely, accurate, and easy-to-use reports.
Below are some specific examples of how BI is helping businesses around the world better manage their cash inflows and outflows.
- Intelligent Forecasting
Financial forecasts create a clear path to achieving your business goals and help you plan for resource allocation and budgeting. With BI software, cash forecasts can be generated automatically. With this capability, financial managers can stay informed at all times, with advanced warning of cash shortage or surplus. This allows an organization to react quickly to growth opportunities or to scale back when needed.
- Data Management
The most time-consuming part about cash flow analysis by spreadsheet is compiling data from multiple sources. Using BI software that integrates with your ERP and CRM solution, you can get the numbers you need in real-time. Your cash flow analysis will provide more meaningful insights and up-to-date reports for quick, informed decision making based on data.
- Project Management
Big projects can have a huge influence on cash flow. Financial managers need to have more control over what comes in and what comes out, so the ability to analyze a project’s duration, costs, resources required, and terms of payment are important for cash flow planning and strategic growth.
- Inventory Planning
Inventory has some hidden costs associated with it. It not only ties up cash in goods, but there comes a certain point when too much inventory works against your cash flow. With BI software, you can find a good balance between demand and supply and be more deliberate with inventory spending. With sales forecasting and smarter reporting, BI can save you a ton of time and money in the long-term.
- Risk Management
Should you invest in a new opportunity? Should you scale back your expenses temporarily? BI software is a reliable tool to manage risks. If your cash flow forecast is showing that you don’t have enough cash, a BI solution will allow you to make a quick projection and liquidity analysis to help make the right decision.
What to Look for in a BI Solution
BI solutions are built to support data-driven analysis and decision making, which is exactly what you need to get a strict handle on your cash flow. As a leader in reporting and analytics solutions for over fifteen years, we have seen it the impact that data and business intelligence can have on an organization’s staff, processes, relationships, and bottom line.
While there are a lot of BI solutions out there on the market today, especially for Microsoft Dynamics users, there are no “one size fits all” solution. Do your due diligence and find a solution that will bring all of your data sources into one platform that provides the reports and dashboards in the format your users need.
Download our Operating Cash Flow dashboard and bring your data to life.
If you’re ready to improve your financial reporting and cash flow analysis, we’re here to help. Download our guide on how to evaluate business intelligence solutions for Microsoft Dynamics for a full list of criteria you will need and a helpful table to compare specific vendors. You’ll learn about what BI solutions are available and how you can optimize your reporting and analytics practices.