Updated: Feb 14, 2019
Knowing how much cash is coming in and out of the business is crucial for all companies, yet many do not truly know their cash position at any given point in time. Cash flow determines the sustainability, potential for growth, and profitability of the company. Understanding the cash flow of the company provides a look into the financial health of the company, therefore, not having an efficient system to track and forecast cash flow can prove critical to it's successful operation.
The best way for companies to forecast cash flow and plan, is to combine all three financial reports into a singular forecasting model, so that P&L, Balance Sheet and Cash Flow are linked.
Why a systematic approach?
1. Accurate Forecasting
Implementing a systematic approach not only allows for an extension of data analysis to benefit forecasting, it also increases accounting integrity for cash flow forecasting. Cash flow numbers are driven by data to best explain the potential future financial prospects of the company. Technology assisted data analysis provides executives a view of multiple years of historical data, and facilitates a more accurate projection of the company’s financial position.
2. A Singular System
A systems approach to 3 way forecasting allows a singular unified system, where all the information can be viewed and manipulated in one platform. Thus, companies will be able to make adjustments and see the flow-on effect in all related reports in real-time. This means executives can create various versions of forecasts and see the consequences of changes in real-time; allowing them to choose between different options accurately and efficiently.
3. Data Integrity and Time Efficiency
Relying on excel spreadsheets and manual data entry for 3 way forecasting is also error-prone and time inducing. Utilising a systems approach to 3 way forecasting improves data integrity in contrast to manual spreadsheets. Implementing technological solutions resolves this significant issue of data integrity, and reduces risks in data management.
For larger companies having a technology driven strategy to automate certain aspects, such as data entry and reporting, may also significantly reduce workload and make the forecasting process more efficient as well as more accurate.
In order to make data-driven business decisions, and have more accurate forecasting, employing a systemic 3-way forecasting process is the way to go!
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