Cash flow management is one of the cornerstones of your company’s financial management. By staying on top of your cash flow, you can spot any cash shortages and take the necessary precautions. Perhaps you need to reduce your overhead costs, ramp up sales or make reinvestments? On the other hand, sufficient cash puts you in a comfortable position, enabling you to invest in new products, move to larger premises, or even recruit additional staff. Moreover, accurate cash flow forecasts allow you to anticipate the future and make the right financing or investment decisions.

It’s very simple. Start by creating a forecast table to visualise expected income and expected expenses.

While income varies significantly among companies and sectors, cash receipts generally include the following categories:

• cash sales (e.g., in retail) or payment of sales invoices;
• financing obtained (e.g., bank loans, current account with parent company, own contributions by shareholders, etc.);
• subsidies received;
• possible credits (such as VAT refunds or NOSS prepayments).

The expenditure side often includes:

• purchases and supplier debts;
• wages and social security debts;
• interest payments and taxes.

Please note that a purchase (cost) or a sale (revenue) does not always equal a cash expense or receipt. After all, payment terms apply to most invoices. To make a reliable cash flow projection, you need to factor in an average payment term. In addition to this ‘direct approach’, you can also indirectly generate a cash flow statement for long-term forecasts. These forecasts usually start from balance sheet variations, but they can also be used to gain insight into important indicators, such as working capital and stock rotations.

One of the main problems in practice is the difference between the predictions and reality. Manually updating cash flow monitoring tables can often be a time-consuming job, making it difficult to analyse differences on a constant basis and take a reactive approach. One solution would be to automate this labour-intensive process. Consider using a supporting tool that automatically retrieves the available financial (and other) data from operational and accounting systems.

Oracle EPM (Enterprise Performance Management), for example, helps companies digitise their cash flow and avoid a lot of manual work, in addition to facilitating a proactive approach to their cash flow. You can read how our BDO Digital experts can help you with this at www.bdo.be > Oracle Cloud EPM Planning.

The time you save thanks to this software can be invested in (for example) developing different scenarios (worst case, best case, etc.) for the longer term. Once all the cash flow data are available, you can combine them with external data (e.g., stock prices, weather trends, etc.) as input for the AI (artificial intelligence) modules for even more accurate cash flow predictions.