A core part of maintaining profitability, especially during uncertain economic times, is to know more about your business’s sources of cash inflow and outflow. Getting a handle on this critical part of your business will help you predict possible disruptions and reduce their impact on your company’s finances.
Cash flow statements provide this information and give you a snapshot of how much money is coming and going during a given period. It’s also a mandatory part of a company’s financial reports, in addition to balance sheets and income statements.
Cash Outflow vs. Inflow Differences
Business stability relies on understanding where your money goes, both in what you’re spending and what you’re receiving. Again, there are different types of cash inflows across operational processes, investment returns, and financing. These sources provide the bulk of your cash intake and the income to keep your company operational.
On the other hand, cash outflows dictate how much money must be invested as a result of those operations. Common outflows include payments for goods/services, taxes, wages, loan repayments, and more.
Inflows and outflows are related because they’re both essential components of your company’s operation. But they must be kept in balance and appropriately monitored to ensure your company’s long-term viability.
This is where cash flow statements come into play.
The Role of Cash Flow Statements
Cash flow statements provide an overview of how money moves throughout your company, and in turn, provides insight into potential vulnerabilities or opportunities that may need to be addressed. These reports detail where the money goes across all aspects of the company.
The statements can be generated broadly to provide a snapshot of financial health, or they can be made on a more granular basis to assess specific activities.
It helps to have records of historical cash flows as a basis for knowing what’s already been done, but the data also helps support broader cash flow management by enabling cash flow forecasting opportunities.
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How to Forecast Future Cash Flows
Among the many accounts receivable collection techniques, one of the most important is cash flow forecasting. This process estimates how much cash a business is expected to take in or send out in a given time period. Business-related variables or industry trends for that time period are taken into account.
Cash flow forecasting can use the following steps:
- Determine how much cash you have at the beginning of a given period.
- Estimate how much cash revenue your business will earn in that period.
- Estimate cash expenses you expect to pay.
- Subtract the estimated expenses from the estimated cash flow.
- Add this figure to your cash-in-hand at the start of that specific period.
The Value of Automation for Simplifying Cash Management
Forecasting is relatively simple until you start considering the variables that may influence your sources of cash inflow. For example, global factors (such as the coronavirus pandemic), seasonal trends, or shifts in consumer preferences can all impact these calculations.
This complexity is why we recommend that companies consider automated collections management solutions. It streamlines the process.
Gaviti’s A/R collections management platform makes it easy to generate detailed cash flow reports, accounting for each variable that may influence your calculations. It also allows companies to better drive on-time payments with:
- Email reminders
- Instant automated notifications
- Smart workflows
…and more, to create a more efficient collections process.
Regardless of your industry, automation is the single best way to make cash forecasting more efficient and stay on top of reports. It saves your team time, money, and productivity across the board. Contact us at Gaviti and book your demo to see just how simple forecasting can be!