4 Tips to Get The Most Out of Your Cash Flow Software
Why do they say cash is king?
It’s because no organization can survive without healthy cash flows.
We saw that firsthand in 2020 when the COVID-19 pandemic destroyed cash flow for many businesses, especially retail and dining. For instance, a total of 26,160 restaurants had permanently closed by mid-July.
Big corporations have suffered from cash flow issues too. As Sears began to decline, the company burned through cash at an alarming rate and saw free cash flow go negative. They simply didn’t have enough money to support operations, and therefore had to declare bankruptcy in February 2019.
Every organization must pay attention to cash flow. By maximizing cash flow and managing your inflows and outflows better, you put your company in a better position to overcome obstacles and unexpected scenarios, like the Coronavirus pandemic.
Managing cash flow successfully begins with having the right tools. Here, we’ll go over four things to know about cash flow software and how it can help your business.
1. Cash flow analysis has a lot of uses
Cash flow analysis involves more than your inflows and outflows and seeing how much cash you have on hand. It’s an integral part of your financial modeling and should be used for high-level strategic decisions.
You’ll analyze cash flow through the following statements:
- Your cash flow statement: This presents a snapshot of cash outflows and inflows from operating, investing, and financing activities over the past month, quarter, year, etc. For public entities, a cash flow statement is one of the three required financial statements, along with the income statement and the balance sheet.
- Your cash flow forecast: This presents future cash flow estimates and is valuable for anticipating cash flow issues. Data points may include sales projections, inventory plans, expenditures, etc.
As one of the most valuable finance and accounting metrics, cash flow has many uses for a business or organization. Cash flow data can help analyze key metrics such as:
- Net present value: Estimate the value of an investment, project, or even decision by analyzing the present value of future cash flows. Discounted cash flow analysis helps show your net present value.
- Internal Rate of Return: Forecast the profitability of investments by looking at the cash flow it delivers.
- Cash flow yield: Measure how much cash flow your business generates relative to your share price.
- Cash conversion ratio: What’s the time difference between paying for inventory and receiving customer payments?
- Liquidity: How capable is your organization of meeting current obligations and operational expenses? Is your current cash flow sustainable?
With capable cash flow software that can perform intelligent analysis in real-time, you can lead your organization to decisions and a more sustainable financial future.
Photo by Mika Baumeister on Unsplash
2. Cash flow software should provide valuable insights
Having a clean model with sound math and accurate data is necessary. But you need more from a cash flow tool.
The best cash flow software tools bring insights front and center. While no tool can predict the future, analysts shouldn’t have to run numbers on all sorts of different scenarios individually and then compare those findings. They should be able to quickly calculate a range of outcomes to make the best possible decisions promptly.
For example, cash flow software can shed light on why net income differs so much from cash flow. Perhaps amortization and depreciation have driven down net income at a company over the past year.
However, since depreciation and amortization aren’t cash outlays, the company has healthy cash flow and is in good financial shape. Communicating that with the board ensures everyone has an accurate picture of finances and that proper decisions are made for the next year and beyond.
Additionally, cash flow tools can offer suggestions on how to improve cash flow. That could include strategies to enhance revenue, operating margin, and capital efficiency. For instance, analysts could utilize the cash flow software to discover that:
- Their pharmaceutical company pays too much for raw materials. They can then implement a plan to get better deals with suppliers.
- Their university could increase enrollment by 10% without building new facilities. They can then execute a marketing plan to boost applications and admissions.
- Their retail chain can increase specific prices by 5% without harming conversion rates that much. They can then make a plan to raise prices and margins.
Finally, cash flow software must prepare organizations for any scenario. This way, analysts can test for worst-case scenarios, such as a pandemic or natural pandemic, to see if the company is prepared and capable of surviving.
3. Spreadsheets don’t excel at cash flow management
Whether you manage finances at a university, real estate investment firm, or manufacturing company, cash flow changes, which is why you need a dynamic tool to do cash flow analysis.
Spreadsheets simply aren’t built for financial modeling. When it comes to cash flow management, they fail for a variety of reasons.
Vulnerable to human error
Almost 90% of spreadsheets contain errors, according to research published by Oracle. When you use Excel as your tool to manage cash flow, that leaves your organization vulnerable to typos, mismatched formulas, and more. One simple mistake can lead to bad decisions.
A waste of resources
Think about this: In Europe, even spreadsheet masters waste 9 hours per week on tedious spreadsheet work. Analysts should have more time to focus on cash flow strategy and big picture ideas. They shouldn’t have to waste time typing numbers into cells, reconciling data across spreadsheets, and updating underlying math formulas.
Static and unwieldy
Let’s say a finance team uses spreadsheets for cash flow analysis and delivers its findings to the board. But by the time they receive it, those spreadsheets are outdated because cash flow has already changed. Moreover, if the information is siloed across spreadsheets, making updates becomes burdensome. This can lead to poor decision-making. Your organization needs a cash flow analysis tool that can perform quick, real-time updates.
The future is full of possibilities, both good and bad. When you perform discounted cash flow analysis and other projections, you need a financial tool that examines all possible scenarios. Spreadsheets, which are constrained by rows and columns, can’t do that. Sure, you can run what-if analysis manually, but it will take a long time to get a clear overview. The process is prone to human error too.
Difficult to communicate
Cash flow not only needs to be modeled and analyzed correctly, but it also has to be communicated effectively. If you can’t share findings with the board, the model is useless.
Or suppose you use a financial modeling software solution that relies on messy, burdensome spreadsheets. In that case, it will be challenging to provide stakeholders with a clear, accurate, and updated view of cash flow and future projections.
You also can’t present the full range of potential outcomes, which means the organization won’t have all the information needed to make decisions.
4. Cash flow projections must yield a comprehensive outlook
Any cash flow tool must bring your team and financial data into one place. For example, changes in the income statement and balance sheet should automatically reflect on a cash flow statement. Analysts should not have to reconcile financial data across various statements.
Look for the following capabilities in a cash flow software tool:
- Pre-mapped accounting: The cash flow tool should be a pre-built but customizable solution. Analysts shouldn’t have to mess with underlying formulas when updating data.
- Layering technology: As mentioned above, cash flow software that relies on spreadsheets cannot test multiple scenarios. You have to test them one by one. Advanced cash flow tools can run various scenarios simultaneously.
- Short-term and long-term outlooks: You need insights for decisions today and tomorrow. Look for a tool that provides short-term and long-term insights.
- Discounted cash flow analysis: The success of your business hinges on the decisions you make. With the right discounted cash flow analysis tool, you can see comprehensive outlooks of future cash flows.
Don’t settle for a spreadsheet-based cash flow tool. Look for software that can do it all, from integrating all your organization’s data to running scenario analysis. This way, you understand where you stand and how you can get to a better future.
Better cash flow software means better business
At Synario, we grew tired of spreadsheet shortcomings. We believe every business deserves better. So we made a cash flow tool that does more than give you a static overview or narrow forecast.
Our cash flow software is a complete decision analysis solution. From pre-mapped accounting and patented layering technology to integrated financial statements, scenario analysis, and sensitivity testing, our tool does it all so you can see the clear and correct path ahead.
Ready to achieve clarity and consensus with your cash flow analysis?
Build cash flow projections at lightning speed with Synario
Cash flow analysis allows you to “pull back the curtain” so you can assess the health and operations of any given company—just by taking a look at how the organization manages its inflows and outflows. This makes it a crucial tool for business leaders and investors alike.
However, putting cash flow statements and analyses together can be time-consuming for executives and the financial analysts tasked with preparing them. Although many finance professionals use Excel, the platform can be hard to work with—especially when different analysts in an organization use their own unique terminology (not to mention potentially incorrect data or calculations).
This is where Synario comes in.
An intelligent financial modeling software developed for Excel masters and novices alike, Synario eliminates the inefficiencies and inaccuracies that have plagued Excel users for decades.
When you replace your current platform with Synario, you gain the ability to draw up financial models and statements in mere seconds. The software comes with automated financial statements, making financial analysis a simpler and swifter task than ever before.
All you need to do is upload your historical data and input your logic. From there, Synario automatically creates complete, accurate financial statements using the information you’ve provided.
If you need to make a change to one part of your statement, for example, Synario immediately populates the rest of your sheets to reflect the new data. Meanwhile, our cloud-based technology updates any changes made across your entire system in real-time, so that team members in different parts of the world can work conjunctly on a project without issue.
Our patented Multiverse Modeling™ feature allows you to analyze different versions of your company’s financial statements, revealing what your business would look like under different conditions. These versions are all housed in one central hub, removing the version control issues that take place far too often when creating financial statements in Excel.
Although Excel may have been helpful thanks to its versatility and prevalence in the finance space, it’s time for this platform to pass the baton to a more intelligent option. Map out the future of your business like never before with the help of Synario.