Tag Archives: Cash Flow Forecasts

You Should Not Rely on Spreadsheets for Cash Flow Forecasts

Finance executives and professionals must rely on purpose-designed planning, budgeting and analysis software solutions that will deliver complete and accurate forecasted financial statements for all budgeted period. Use of spreadsheets or pure guessing of anticipated future results can never deliver this level of completeness and accuracy and any cash flow projections done in this manner will be a gross estimate that should not be relied on.

How is Cash Flow Affected When Your Company Records Revenue and Expenses?

Most companies use the accrual method of accounting. This means that all revenue is recorded in the period it was earned and all expenses are recorded in the period they were incurred. Both activities, however, do not usually coincide with cash receipts and cash disbursements due to varying payment terms extended to customers and received from suppliers. These can be 30, 60 or even 90 days and each customer or supplier may have different payment terms. This makes cash flow projections very difficult and actually impossible to implement. Use of spreadsheets for cash flow projections will typically produce results that are grossly inaccurate. The solution is to employ a planning and budgeting software application that has all the business logic built in where all payments and cash receipts are automatically applied in the correct budget periods. This will help generate a much more complete picture of all future cash receipts and cash disbursements.  The generated forecasted Balance Sheet and Statement of Cash Flows will allow finance executives and professional to evaluate future cash requirements or cash surplus.

Inventory and its Effect on Cash Flow Forecasting

Inventory purchases often represent the highest cash outflow in many businesses. Forecasting cash needed for inventory purchases can be a daunting task unless proper planning and budgeting tools are used. Each forecasted sales transaction will affect inventory levels and require the purchase (or making) of additional inventory, affecting the forecasting of cash needs. Sale of inventory will also create a future in-flow of cash that must be part of the cash flow analysis built into the planning and budgeting process.

Formulas, Functions and Links

Formulas, functions, links and other user programming done in a spreadsheet environment often results in undetected errors, broken links and other programming issues that can have an adverse effect on the integrity and accuracy of the work performed. Maintaining large and complex spreadsheet files used in corporate planning, budgeting, and especially scaling the models is often an exercise in futility. Cash flow forecasts that rely on these spreadsheets are usually unreliable, grossly inaccurate and can seriously mislead management into making wrong tactical and operational decisions.

Forecast as an Extension of Actual Period Accounting

Similar to financial statements of past accounting periods, a properly prepared plan and budget should  also include a Balance Sheet and a Statement of Cash Flows, in additional to the commonly seen forecasted Income Statement. Using a software solution (either In the Cloud or On Premises) that was specifically designed to be an extension of an organization’s actual accounting system will allow company managements to gain visibility into their organizations’ future financial health.

Don’t guess with spreadsheets. Upgrade to business budgeting software such as Budget Maestro™ instead.

Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planningfinancial forecastingfinancial consolidation and reporting processes. For more information, take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.