James Watson - Nov 8, 2019

Go beyond expenses and improve your cash flow forecasting

There are many advantages of having a real-time spending and expense management platform such as our very own. However, these go well beyond improved receipt capture, spending controls and our amazing integrations.

One huge benefit is how we help to power and improve cash flow tools with real-time and accurate data. So with cash flow being a hot topic at this years Xerocon, we caught up with our friends at Float to delve deeper into how Expend, Xero (or QuickBooks) and Float working together supercharges your cash flow forecasting and help to make even more intelligent and informed business decisions.

Why your business needs a cash flow forecast

Poor cash management is the number one reason why many businesses fail. An understanding of the future of your cash is imperative to ensure the health of your business, yet so many businesses lack this visibility. The best way to gain that insight is through maintaining a cash flow forecast.

But what is a cash flow forecast? Cash flow forecasting is the process of working out how much your business will spend and receive in the future in order to build a picture of its future bank balance.

How forecasting your cash can help your business

Track your spending and stay in budget

Being able to scribble down a rough idea of your next big cash incomes and outlays on the back of the napkin is all well and good, but are your guesses always right?

A balance sheet or a P&L will give you a one-time snapshot of the current state of your business finances, but it doesn’t show you how much money you will actually have in the bank in the future. Put simply, it just isn’t ‘real.’ With a cash flow forecast that is regularly updated with actuals, you can compare your expectations to what really happened, which can highlight inconsistencies and overspending.

Pinpoint cash ups and downs before they happen

Projecting your future bank balance will help you see if there is an upcoming cash shortfall that could be disastrous for your business. It can also give you the time you need to make the necessary changes to avoid a dip into the red, enabling you to access better loan rates or tighten up payment terms to cover the deficit. Forewarned is forearmed.

Conversely, if it looks like you might have a large cash surplus in the bank in the next few months, knowing this early will allow you to see how it can be reinvested in the business.

It’s part of what you need to grow

Even if you’re not actively concerned about cash, building and keeping a cash flow forecast up to date should be a key part of your monthly reporting. If you want to grow your business, understanding and visualising how that growth will happen is the first step.

Before you scale your sales team or commit to extra office space, you should create a scenario to plan how those actions would affect your bank balance. In order to reduce risk, you need to understand whether or not plans are actually doable in terms of cash, rather than profit and loss (which is often not realistic).

Build trust with stakeholders

If you have investors, they’re likely not as involved as business owners are with daily tasks, which means that they tend to think of the business at a higher level, and they’ll want you to do the same. You’ll need to provide them with clarity on what the future of the business looks like, which a regular cash flow forecast (including best, average, and worst case scenarios) will do. This will bring you a higher level of accountability, making it more straightforward to raise further investment if you need to.

Be on top of accounts receivable

By building a cash flow forecast that takes invoices and bills into account, and uses them to track against actuals, you’ll be more easily able to pinpoint who is regularly paying late, enabling you to enhance your credit control process. You could then model more accurate expected payment dates on overdue invoices to see the true impact of late paying clients on your cash flow.

How Expend can help

Cash flow forecast tools are only as good as the data they receive from your accounting software. By choosing Expend, you’re choosing the only real-time spending and expense management platform available that provides expense cards to employees who need them, receipt and invoice scanning, mileage claims that connects click-free with Xero + Xero Bank Feed and QuickBooks. Expend is the flexible spend management engine that gives businesses the visibility they need to supercharge your cash flow forecasting to new levels of accuracy. Signup for your free trial.

How Float can help

Building a cash flow forecast is a crucial part of managing your business finances, but it can also be very time consuming to build manually. Cash flow spreadsheets can be a nightmare to keep up to date and even one decimal point out of place could throw off your whole forecast. A way to free yourself from this risk and streamline the whole process is to use a cloud-based tool such as Float to connect to your accounting software (Xero, QuickBooks Online or FreeAgent).

Float is a really easy to use tool that automatically updates from your accounting software every 24 hours to populate your forecasts with payments, invoices and bills, saving you time. In Float, you can also easily build scenarios to see the impact of your future plans on your cash. Customers who used to spend 1-2 days a month on their cash flow forecasts are able to reduce that to a matter of minutes using Float.

 

Written by James Watson

I've made it my mission to alleviate the working world of the stress of expense management. Whether you're a business owner, an accountant or a finance professional, Expend could be solving problems for you!