CashFlowMapper’s Buyers Guide to Flow Forecasting Software

The answers to the questions you must ask when selecting a forecasting solution

www.cashflowmapper.com Introduction

Why the need for a cash flow management software buyer’s guide?

When it comes to software for your business, there are always options available and plenty of good ones too. is one area of finance where software used to be conspicuous by its absence, but not anymore.

There are literally dozens and dozens of applications to choose from. However, they are not all created equal. A good user experience – usually defined as the ease of use – generally results from good graphical design of the user interface, a logical layout, and the inclusion of the right mix of features.

And when it comes to the core purpose of cash flow management the software is there to answer the question: “What happens given these cash flow transactions?”

It should be relatively straight forward and arriving at the answer should not require advanced database skills, the use of maths algorithms, or a highly developed intuition just to work out what the software should simply be telling you.

Some might perform many functions well, but may do other things badly. Some might be good but are let down by a missing a feature or two. Some might be badly thought out and illogical while others poorly designed and unusable; or the worst might be unintelligible, getting all of these wrong.

In short, identifying the right solution for your business is tricky. In this Buyer’s Guide we aim to help by giving you a good starting point with answers, pointers and guidance on some key questions.

Page 2 Frequently Asked Questions

FAQ1. Does software let me plan or forecast for any situation?

That’s a good question to start with! Software that requires you to forecast by locking you into an inflexible process is not very user friendly and it is unlikely to offer the degree of flexibility you need to enable optimised management of cash flow.

Any true cash flow forecasting solution needs to be flexible enough to let you change the variables within the model by allowing you to edit any data point at all times. A good solution is likely to let you accommodate more than 12 month fixed periods for example. It will allow you to forecast over any timespan you like, as well as produce rolling forecasts as well.

12 months is generally the and taxation reporting period and a 12-month period matches a standard budgeting period. From a cash outflow perspective, it is often a 12-month cycle, so you should capture everything you need in your model at the least. However, shorter and longer forecasting periods are often needed. Your software needs to facilitate this.

FAQ2. Do I need to be an expert to use the software?

Despite the fact cash flow forecasting is a financial practice it’s also a general management task that is frequently undertaken by non-financial people.

A good forecasting application should not require a degree in economics, accountancy qualifications or any specialised and expensive software training courses to enable a user to perform cash flow forecasting.

FAQ3. How can I compare and actual cash flow?

Some cash flow management software is built on the assumption of a simple one-size model. However, just like shoes, one size does not fit all! The capability to compare budget and actual cash flow is not accommodated with in a one size fits all approach.

A good cash flow management solution tracks your cash flow against a budget. Forecasting it against the rest of the budget period lets you identify variance areas and focus on the underlying reasons. These might be positive or negative. Equipped with the right solution you can take the action needed to curtail the negatives and encourage more of the positives.

Page 3 FAQ4. Will I be able to plan for variances in cash inflows and outflows?

Forecasting for anything – including the weather - which lets you prepare only one possible outcome is very poor practice. It is essential to avoid cash flow software that only lets you forecast for one outcome because it limits your ability to consider different scenarios.

Generally, the board or management team approves one version which seems the most likely or is the one it wishes to target. However, before you decide which one that is, you need to consider the other possibilities. Consequently, it is absolutely vital that your cash flow management solution lets you easily compare different cash flow scenarios, depending on when payments are made or received.

FAQ5. How much level of detail can I expect to see?

Take the example of a period of cash shortages; in such times there is a strong need for short term, highly-detailed forecasts. A solution that provides a 12-month model but only sub-divides by months is almost useless in these situations.

There is a need to be able to drill down to understand the finest of details. The best solutions put every detail at your fingertips whenever you need them, reporting them on a daily basis.

FAQ6. Can non-finance people understand reporting?

In the same way that using the software may need to be carried out by someone that is not a finance expert or that possesses detailed knowledge in using the software, reporting needs to be readily understood by any audience. If there’s no financial person in the room, the user needs to be able to read the forecast so they are able to take appropriate actions based on the output.

Remember, besides those with the responsibility of presenting or analysing the cash flow forecast, a number of other people may need to be in the loop. After all, depending on the size of the organisation, there can be a lot of people who need to understand how the software works and / or make decisions based on the story it tells.

You might be of the view that all people in a decision-making position should be financially literate. But if they aren’t, they aren’t! Your cash flow forecasting software needs to be able to communicate to everyone in plain language.

Page 4 FAQ7. How do non-financial people understand what is going on?

A conventional cash flow forecast is formatted as a numerical report showing:

• Month & plan-to-date movements & balances per transaction • Month & plan-to-date opening & closing cash • Month & plan-to-date total cash movement

This report, coupled with commentary explaining the highlights (and lowlights) is a logical presentation for a high-level view by finance staff and as a summary for management and the board. However, for non-finance people, they are often little more than gobbledegook.

Quite simply, the best solutions follow the truism ‘a picture paints a thousand words’. Drawing a picture, in the form of a line graph that maps out cash flow is all that is required to enable the cash flow forecast to be understood by absolutely anyone. Displaying multiple graphs on the same timeline enables alternate scenarios, and previous forecasts to be viewed simultaneously. After all, who wants to flick back and forth between different pages when you can view your scenarios together at once? The graphs will each have their own peaks and troughs. Full commentary for all these completes the picture.

FAQ8. Can I avoid re-keying data into the software?

Cash flow management software uses recent historical data to inform us of the future in the present. It predicts future cash flow activity by using past payment dates for creditors and receipt dates for debtors as a basis for predicting future ones. This information already exists in your systems and, as the question suggests, it would be extremely inefficient to have to re-key this data into your cash flow management software.

A cash flow management solution should avoid duplicating data entry by enabling you to import source data. A good way to establish a foundation for cash flow planning is to take two or three months’ bank data, and use it as a base. This is the fastest and most convenient way to hit the ground running with cash flow forecasting. Links to the payables and receivables to import current know receivables and payables with expected due dates also create an efficiency. Then simply add anticipated future inflows and outflows not contained within this data.

This approach means you have data for everything that goes through your bank account and are assured of accuracy. Upload should be scalable, enabling you to work with as much data as you want to as well as multiple bank accounts. A solution that is fully editable enables data points to be added or revised to provide alternative scenarios or reflect new dates and amounts of inflows and outflows.

Page 5 FAQ9. Should I consider a cash flow management app in the cloud?

Yes you absolutely must! The benefits of the cloud are simply too compelling to ignore. One of the biggest technology trends of the last 10 years has been for line-of-business (LoB) applications. These are software solutions designed to meet the needs of a common, specific area of business such as finance or sales, or aimed at a sector such as insurance, accountancy or recruitment. In IT parlance they are also often referred to by the service delivery name of SaaS, or Software-as-a-Service applications.

The alternative is to have an on-premise solution where you run it on your own server, licence the software and have your IT team support it. However, the cost calculations often produce startling differences. Typically a cloud solution reduces costs by somewhere between 60-70% when compared to an equivalent on-premise solution. When it comes to the cash flow management LoB, there is a very strong case to support choosing a cloud solution.

The internet is borderless and it may mean data is stored offshore. When considering any cloud application or solution it is essential that you satisfy yourself that it is secure and that you understand the issue of data sovereignty. Be sure to ask direct questions of any prospective cash flow management service provider to clarify their position on such matters.

Page 6 About CashFlowMapper

Why CashFlowMapper?

Producing & Loss Statements and Balance Sheets & Cash Flow Statements which measure past activity, using standard accounting systems tends to be no problem. It is often possible to produce a useful report straight out of the system.

Those same accounting systems also facilitate the input of budgets and are used for variance reporting. However, business activities such as future marketing campaigns, sales promotions, capital purchasing or financing; new product or service offerings; price & operating changes; and a myriad of other events all have cash flow implications. Consequently, cash flow forecasting is the most important function in finance and is crucial for successful management and control of every business.

CashFlowMapper complements existing, historical-looking accounting systems by providing the powerful forward-looking capability that so many of them lack. It’s an enhancement not a replacement. There’s no need to junk current , or waste money on more elaborate, complex and costly systems, such as Enterprise Resource Planning (ERP), that often provide cash flow forecasting along with a whole host of other features that you simply don’t need.

CashFlowMapper provides efficient cash flow forecasting, cost effectively filling the gap between standard accounting systems and expensive ERP systems.

Mastering transaction chaos

Reporting monthly profit and loss is important, but very few business transactions actually occur in a neat monthly fashion. They can occur on a weekly or quarterly basis, in periodic clumps or as one-offs, to identify but a few possibilities. The value of a transaction may be subject to change upon contract re-negotiation or due to inflation. These are just some of the important factors that shape cash flow. An accurate cash flow forecast maps transactions exactly as they occur in reality.

Cash balance itself is a dynamic beast. It is good to know what happened in the preceding month, but it is crucial to anticipate what is going to happen tomorrow, next week, 6 months or 3 years down the track as well, so you can plan for shortfalls or take advantage of surpluses.

CashFlowMapper proven in businesses large and small

CashFlowMapper is used for forecasting, planning, scenario analysis and board reporting in businesses large and small, as well as for personal budgeting. Its usefulness in any cash flow situation has been proved numerous times.  www.cashflowmapper.com    +61 1300 883 229   [email protected]

www.cashflowmapper.com