Cash Flow Management: More Important and Complex Than Ever

Cash flow is often on the minds of CFOs and finance teams. Yet, it’s one of the hardest parts of a business to accurately forecast, especially for a small business that may not have the resources to create and continuously update an accurate cash flow statement. With so many factors contributing to cash flow—everything from interest rates to sales cycles—many of those involved with it struggle to get a proper handle on forecasting.Of course, an increased focus on cash flow is a good thing. However, as organizations request more and more information from the office of finance at a faster pace, there is an increased potential for conflict.What explains cash flow management's increased complexity? There are several factors driving the conversation around it that contribute to its difficulty.

Real-Time Information Leads to Agile Decision Making

Over the past few years, organizations have become increasingly focused on making business decisions more quickly, allowing them to act on potential new opportunities as they arise. Technology now plays a major role in the ability to quickly compile and access information—a lack of which has traditionally hampered decision making. In the past, it might have taken weeks of interdepartmental coordination and number crunching to update an Excel spreadsheet and get a snapshot of the financial health of an organization. Now, that data is at our collective fingertips and can be accessed at any moment. As organizations request more data from the finance team more often, it’s critical to have processes and tools in place that allow quicker and more accurate data collection. Programs and platforms that enable organizations to have up-to-the-minute data place them in a better position to make decisions more quickly. Organizational dashboards that highlight KPIs means that key decision-makers and business owners can have clear, insightful views of the information that should be directing the business, leading to more accurate and data-driven decisions that rely on cash flow.

More Coordinated Management Teams

Along with data enabling more agile decisions is the trend of accounting, finance and budget managers becoming part of the decision-making team.This is important in several ways. First, these leaders now have access to the technology that is speeding up information collection. Organizations have routinely waited a day or more to be able to consolidate their cash positions, meaning the traditional key stakeholders were forced to wait until getting that information to move forward. This gives CFOs, treasurers and budget managers the opportunity to step into more strategic roles as important contributors and decision-makers in operational strategies. Now, with more coordination and cooperation between departments, the finance department has a key role to play beyond just wrangling the data and preparing the numbers for cash flow accuracy. CFOs and budget managers can take the lead in streamlining the process between departments, not only saving time but increasing overall efficiency as well.

Combining Data and Decision Making to Improve Cash Flow Management

The question now is, what do better access to data and better and more accurate decision making have to do with cash flow management? With these elements, it becomes easier to quickly identify cash flow problems and develop an accurate cash flow projection. By pulling data together from across the company quickly, finance teams are able to easily process the data and perform a cash flow analysis from current information. With that analysis, it's easier to understand potential shortfalls, and positive cash flow trends vs negative cash flow trends. Effective cash flow management becomes seamless if the office of finance has access to financial management and business intelligence tools that promote the rapid analysis of current data, providing a 360-degree view of the balance sheet, business needs, cash balances, and expect cash inflows and cash outflows.Access to this information across the management team sets finance leaders up to have intelligent conversations around business activities and expectations. For instance, if the data points to a potential shortfall in accounts receivable compared to what was expected, the finance team can quickly begin discussions on how to maintain enough working capital for the company. This opens up the opportunity for discussions across the leadership team to address the problem in the short term and address the large problem going forward. Options such as a line of credit, requesting an adjustment to vendor payment terms, or a term loan can be had before the need is desperate. This can lead to easier conversations with financial institutions if called for and leaves the company in a better bargaining position.

Final Thoughts

Cash flow is the lifeblood of a company, from small business to Fortune 100. As organizations grow more complex, so do their cash flow issues. It requires a coordinated effort to take the right steps to ensure future cash flow forecasts can be projected both accurately and efficiently. With the right tools and open communication, cash flow problems can be managed or potentially avoided altogether. As cash flow management becomes increasingly complex, having access to the best financial projection software can simplify the process and provide more accurate forecasts.‍