Powering your cashflow forecasts with data


Cashflow forecasts show the future path of cash flowing into and out of your business. A forecast is your ‘cashflow crystal ball’ that allows you to see a month or a quarter further along the road, and predict the potential cashflow obstacles that will slow down your business journey, or will impact on your existing strategic plans and spending.

But in the digital age, with access to a huge selection of online financial tools, you no longer need to work out your cashflow forecasts manually. With cloud accounting software as your financial platform, you can use the data in your books to drive your cashflow forecasts, and get far more accurate forecasts as a result.

Here’s how that data process works, and why a data-driven cashflow forecast gives your business a far more accurate view of your financial destiny.

Forecasts based on your historic actuals

Modern cashflow forecasts work by taking your accounting actuals and using data prediction techniques to build a future forecast of your cash position.

Your ‘actuals’ are the historic data that’s created from the bookkeeping and accounting processes. These are the numbers that show the money coming into and going out of the business – from a cashflow perspective, the cash inflows and outflows in your accounting.

Modern cashflow solutions like Fluidly integrate with your cloud accounts to use these historic actuals as the foundational data for a forecast – using the direct cashflow method. By extrapolating your cash data forward in time, you build an accurate and realistic prediction of your cash position in the future.

Drivers-based forecasting of cashflow

Using your accounting actuals as the foundation of a cashflow forecast produces accurate forecasts, based on solid empirical data. But you can also increase the value (and potential insights) of your forecasts by incorporating drivers-based forecasting into your reporting.

The drivers in your business model are the key variables that will affect your revenues, cash and profitability. They’re the driving forces that control whether the model is efficient, profitable, or liable to run at a loss – so understanding the impact of changes to these drivers is critical.

By increasing your price, for example, you increase the cash coming into the business and boost your cash inflows. Drivers-based forecasting models these key variables and uses these numbers as the basis for a forecast. The main benefit of this is that you can change a variable (like price, or payroll spend) and see the impact in the forecast.

This ability to tweak your driver numbers and to instantly see the future impact is invaluable. Drivers-based forecasting is a key tool to use when brainstorming, scenario-planning and trying out different strategic options during business decision-making.

As such, it’s a an essential cashflow element to have in your management reporting armoury.

Smart analysis with AI and machine learning

FinTech products are increasingly using artificial intelligence (AI) and machine learning within their cloud apps and financial analysis processes – and cashflow is no exception.

Machine learning is at the core of the forecasting process in cashflow solutions such as Fluidly. Algorithms in the software integrate with the data in your accounts and learn from the patterns, trends and anomalies found in this source of key financial data. By learning from experience in this way, your forecasts become more accurate over time.

What this means is that the software can provide you with detailed analysis and meaningful insights into your future cashflow position, based on the empirical data in your books.

In practice this means that AI can help by:

  • Forecasting cashflow dips and seasonality – and showing you the periods where you’ll need to increase your cash income to fill these cash holes.
  • Highlighting anomalies and unusual cash patterns – flagging up possible issues relating to slow payment, overspending or poor management of your cash position.
  • Suggesting appropriate actions – and helping to curate your cashflow in partnership with your finance team, making your cash management more proactive.

Embrace the future of cashflow forecasting

With software revolutionising accounting and the ways in which financial management is approached by modern businesses, there’s real value to embracing a data-driven approach to cashflow forecasting – and giving your forecasts that competitive edge.

A data-driven forecast can be quickly and easily produced using the right software tools (in some solutions, this can even happen automatically). And the resulting cashflow forecast is more accurate, more insightful and more forward-looking than any manual forecast.

If your business is looking for a more efficient and accurate cashflow forecast, see how Fluidly’s smart cashflow solution will revolutionise your control of cashflow.