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Cash Flow Forecasting: The Key to Future-Proofing your Business

December 19, 2023
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If the last few years have taught us anything, it's to expect the unexpected. Is your business set up to handle dynamic market conditions? Do you have the resources to adapt? How will you prepare the company for the challenges that have yet to be uncovered?Understanding the financial health of your organization as it stands today and measuring the strength of your cash position is critical. Without it, you won’t know if you can make necessary capital expenditures to deal with unforeseen changes in the market, or have the funds to hire to ramp up production. Cash flow forecasting provides much needed insight when preparing for known unknowns — it's the most effective way to start future-proofing your business for the year ahead.

What is a cash flow forecast?

The cash flow statement is an important tool that shows how your business decisions impact cash and cash equivalents. It breaks the analysis down into operating, investing, and financing activities.  Your ability to produce accurate and timely statements — and to perform analysis based on those up-to-date reports — is critical for assessing both the current health of your organization and making key decisions for the future. The problem is that generating accurate cash flow reports can be problematic.Cash flow analysis can get thrown off when the development of the cash flow statement is an afterthought, and there’s no link between the cash flow analysis and critical business decisions. Another source of pain is when integrated cash flow reports are based on GAAP accounting rules, not formulas, but aren’t supported in the planning and forecasting software application a business is using. Inevitably, formula errors and other problems arise when the detailed insight you need on critical elements of your cash flow analysis aren’t readily available and must instead be manually calculated in a spreadsheet. Any of these issues can limit a thorough, accurate understanding of the forecasted cash position of the company.To set your organization up for success, you need modern FP&A tools that put cash front and center. By ensuring you have synchronized financial statements to begin the cash flow forecasting process and can leverage what-if analysis with drill-down capabilities, these innovative solutions can provide the insight needed to future-proof your organization.

Cash flow forecasting for 2024

Here are five considerations to ensure your cash flow forecasting process is ready to go for 2024:

1. Ensure financial statement integration

You can’t manage your cash flow in a vacuum. By synchronizing key financial statements, including the income statement, balance sheet, and cash flow statement, you can provide a complete view of core operations, investments, and financing activities that will impact cash flow at any given time.

2. Perform what-if analysis

To guard against future uncertainty, companies should be scenario planning for a wide range of potential business challenges and opportunities. Executing what-if analysis for business options that have the potential to effect funding and cash position scenarios should be job number one. Modern FP&A tools offer the ability to version different scenarios and generate a new set of financial statements for comparative analysis.

3. Strategic workforce planning

Given labor shortages and other personnel issues facing many industries, getting a better handle on your organization’s workforce needs for 2024 is incredibly important. By integrating strategic workforce planning into the process, you can immediately see the impact of headcount changes to payroll and cash flow.

4. Capital asset planning

Many businesses are able to successfully pivot their operations in response to major disruptions, like the Covid-19 pandemic. Often, it required capital spend to get it done. For the year ahead, ensure you can forecast capital asset purchases and depreciation/amortization on a detailed or aggregate level. With immediate access to a cash flow statement, timely decisions can be made on where spending (or cuts) can occur to achieve the objective — even down to the department level.

5. Deep drill-down capabilities

High-level reporting has its place, but when it comes to cash flow forecasting, a more detailed analysis is required. Be sure you can drill down from a high-level summary cash flow statement to view the underlying components that make up cash from operations, investments, and financing. This insight provides a full understanding of the cash flow statement and offers powerful predictive capabilities.The one thing finance executives can count on for 2024 is that the business environment will continue to be change. Cash flow forecasting is a powerful tool that your organization can use to evolve along with the market. By deploying a modern FP&A solution that can manage even the most complex cash flow requirements, you will have the ability to assess the financial health of your organization today and plan for its ongoing survival, even in the face of future uncertainty.

Book a demo to see how Centage's formula-free FP&A™ software can help you create detailed, varied cash flow projections to safeguard and future-proof your 2024 budget.

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