Across the globe, the business environment remains in a seemingly endless state of flux. Supply chain shortages, major gaps in the workforce, and a never-ending pandemic are impacting each and every industry and contributing to this perpetual state of uncertainty. Is your business set up to handle these 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 that capital expenditure or have the funds to hire to ramp up production. Cash flow forecasting provides that much needed insight and is the most effective way to start future-proofing your business for the year ahead.
The cash flow statement is an important tool that shows how your business decisions impact cash and cash equivalents – and breaks the analysis down to 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…whatever that future may hold. And yet, all too often, generating accurate cash flow reports can be problematic.
Analysis can be flawed as the development and analysis of the cash flow statement is almost an afterthought and thus there’s no link between the cash flow analysis and critical business decisions. Or perhaps your integrated cash flow reports are based on GAAP accounting rules, not formulas, but aren’t supported in your current planning and forecasting software application. And perhaps worse still, 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. Whether you are contending with one of these issues or all, any of them can limit a thorough, accurate understanding of your 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.
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Cash Flow Forecasting for 2022
Here are five considerations to ensure your cash flow forecasting process is ready to go for 2022:
- 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 the core operations, investments and financing activities that will impact cash flow at any given time.
- Perform What-If Analysis
Now more than ever, company’s need to start 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 all these different scenarios and generate a new set of financial statements for comparative analysis.
- Strategic Workforce Planning
Given the current labor shortage facing many industries, getting a better handle on your organization’s workforce needs for 2022 is incredibly important. By integrating strategic workforce planning into the process, you can immediately see the impact of headcount changes to payroll and, most importantly, cash flow.
- Capital Asset Planning
There are many stories of businesses successfully pivoting their operations during the 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.
- 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 2022 is that the business environment will continue to be dynamic. 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 ongoing uncertainty.
Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.
