How Cash Flow Software Has Proved So Vital.

Published 17th May 2021

Why Bother with Cash Flows?

Cash flow is the money that is flowing in and out of your business, and is the life blood. Without cash, your business will not survive. Having a positive cash flow means more money is coming into the business than going out. Bear in mind however, you may have a high profit but a low cash flow, as you often need to pay suppliers sooner than you receive the money from customers. Fast growing businesses also often require more cash to buy stock, hire employees. So it is vital that cash and cash flow is carefully calculated and monitored.

Ideally, you want to have a positive cash flow. This means that more money is coming into the business than going out. If you have a positive cash flow, your business will be able to pay its bills and invest in growth. A negative cash flow means you’ll need to find a source of income/funding to be able to pay off debts. Most businesses have negative cash flows at some stage of their life – which is fine if the business has the funds to finance it.

Failure to keep on top of cash flows.

This can be costly and lead to a number of problems.

Some of the main problems you may come across:

Too much stock. If you receive high demand for a product, it’s tempting to order a high volume of material to service that demand. However, if that demand then fluctuates, you could be left with too much stock and, potentially, debt from ordering the materials. However, running out of stock could mean lost sales, and so this is a fine balance.
Long payment terms to customers. Lengthy payment terms may be attractive to ‘seal the deal’ but can often result in long periods of time where no money comes in. Any unseen issues, i.e., replacing equipment, can then be problematic.
Overspending. It’s very tempting to go on a spending spree when you win a new client. You need to be mindful that you haven’t got the money until they have paid you. Spending money that you don’t have is never a good idea.
Overtrading. Just as with stock, it’s easy to get carried away with your business outlook after securing a big order. Employing more staff or expanding to more locations might seem like a good idea to grow your business. However, you need to have the cash flow to back this up. While your profits can vary, your rent and salaries won’t. This means that you need to be able to withstand short term pressure on your finances if you want to grow your personnel and premises.

Monitoring your cash flow is like monitoring your pulse – it is crucial health check for your business. More than a third of SME’s cite issues with cash flow as a barrier to their growth.

It is crucial to understand what your cash flow is, how to calculate it and how to use a statement to keep on top of things.

Life Before Cash Flow Software

Cash flow forecasting has historically been quite a laborious manual process. It used to be carried out almost entirely using spreadsheets or Sage Winforecast. This was labour intensive, and dependent on the skills and foresight of the preparer. Also, as soon as you had finished, something would change (a late payment would arrive) and then the whole thing would be instantly out of date needing it to be reworked. Arguably a time consuming and frustrating process.

How To Make Life Easier

Many of our clients use automated tools like ‘Fluidly’ or ‘Clarity’ that gather data straight from Xero, giving them real time information. Simas Accounting & Tax currently use Fluidly. Knowing the exact amount of funds available at any given moment and using historic trends on a customer by customer basis makes this a very important tool as it informs each decision that you make.

FORECAST = data is taken from your historic Xero or QuickBooks account to create a base forecast that is always up to date, based on historic trends. The link is updated daily but can be forced to update when required.

PLAN = once your forecast is set up, we can use ‘Plan’ to easily model the impact of different scenarios on your cash flows, amending for known variables.

FUND = if your business is looking low on cash, get tailored pre-qualified funding offers. They will help your business to survive or grow or we can discuss the cash needs of your business in general, and advise how much you can take out.

CHASE = Chase helps you to get money in the bank, fast, by helping you collect what’s owed to you from debtors. There are also functions in Xero and Quickbooks to automate this process.

If you would like to review your cash flow with Simas Accounting & Tax, contact us today and make an appointment.