In our recent piece, The SaaS Financial Model You'll Actually Use, we shed light on why cash flow forecasting—and having the right model—is so important.
Having a cash flow forecasting model that's dynamic, easy to pivot according to shifting conditions, and can support different scenarios is not a luxury—it's a must. It also needs to be easy enough to understand and work with no matter which team member accesses it, from business owners to financial managers.
This guide explains cash flow modelling software, why you need it, and the top five modelling programs available today.
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Why You Need Cash Flow Modeling Software
Your business's cash flow is its lifeblood. If you run out of cash and can't get financing, your company becomes insolvent. Future revenue is out the window.
You have to be able to view accurate cash flow projections at any given time —even in real-time. If 2020 and a worldwide pandemic taught us anything, it's this—unprecedented times, if little to no business planning has taken place, can cause a business to fail.
Forecasting cash flow—financial planning overall—can alert you to such things as:
- How long you can sustain payroll
- Accounts receivable issues
- Vendor and supply affordability
- Where you need to make adjustments
Plus, if you ever find your business in need of financing, lenders need to see your cash flow forecasts to assess potential risks. Good cash flow modelling software is the key.
How to Approach Cash Flow Forecast Modeling
Depending on how much information you need for your subscription business, cash flow forecasts can be tracked by the month or week—you can even track cash flow daily, if necessary. Daily cash flow forecasting is an important tool for companies that assume potential cash shortfalls in the future.
The two best ways to approach cash flow forecasting include:
- Directly. The direct method projects cash inflows less cash outflows, such as supply purchases, payroll, and employee benefits. The direct method is best for short-term forecasting when you know actual data.
- Indirectly. The indirect method begins with the business's net income and then adds and subtracts projected changes to balance sheet accounts, such as accounts receivable and payables. The indirect method works best for more long-term projections.
Long-term cash flow forecasts allow for strategic planning, but they're susceptible to increased volatility the farther out the projections. For greater granularity and improved accuracy, a short-term cash flow statement is a better option for struggling businesses.
In a perfect world, all businesses should employ short- and long-term cash flow forecasting.
But which cash flow forecasting software is best for your business?
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Top 5 Cash Flow Forecasting Software Programs
Vena helps people connect data with their existing forecasting systems. Their "Excel interface combines unmatched integrated planning capabilities with the world's leading grid, allowing teams across the business to work together under a shared vision using a platform they already know."
Businesses evolve—so, too, should their systems. Prophix helps you hit your financial goals with their "innovative Corporate Performance Management (CPM) software. Improve profitability and minimize risk when you automate repetitive tasks and focus on what matters."
If your business already uses accounting software like Xero or QuickBooks Online, Float is an add-on service that can help you create better, more accurate cash flow forecasts, and therefore, better decisions for your business. Float's cash flow forecasts are "always up to date and take a fraction of the time to prepare when compared to spreadsheets."
Payference is the perfect cash flow planning software that offers "visibility into cash position now and in the future" by pulling all of your "important financial data into one place by integrating seamlessly with ERPs and bank accounts."
If your business has stepped into the future and is harnessing the powerful assistance of artificial intelligence (AI), Fluidly can provide you with "intuitive cash flow forecasting and management."
Pairing one of the above cash flow modelling software programs with the incredible insights you can gain with Baremetrics can keep your business sailing smooth through the roughest of waters.
How Baremetrics Can Help
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