The current explosion of big data, coupled with the emergence of new tools, has made financial management easier for businesses. With tools like QuickBooks or Xero, business owners can easily create financial statements and get a gist of their business's financial health.
But make no mistake!
Financial statements like balance sheets and P&Ls primarily focus on a company's past performance, leaving current cash and future transactions aside.
For businesses with lumpy revenue streams, it can be challenging to make data-driven decisions by just looking at the balance sheet and the P&L. And this is where cash flow forecasts come in handy.
With the right tools, business owners can easily manage cash flow and improve their company's financial health. One such tool is Dryrun, a financial management tool that gives business owners an instant and unbiased view of the health of their company.
In this guide, we'll explore the benefits of data-driven financial forecasting and explain how Dryrun can help businesses manage their cash flow and predict their sales.
It Starts with Cash Flow
Any effort to make data-driven financial decisions should start with having clear visibility into your company's finances. Understanding your current and near term cash flow is a critical first step to making informed forecasts.
For your business to be successful, it must have adequate cash reserves on hand. You need money to cover expenses, pay taxes, pay bank loans, and purchase new assets. A cash flow forecast determines if the business has enough cash reserves to make the move.
Having cash is key for the business to stay solvent. When the company no longer has enough cash to pay its expenses, it's often declared bankrupt.
An accurate and up-to-date cash flow statement will help ensure your agency maintains a healthy cash balance. And keeping a tab of your cash balance will help you make data-driven decisions.
Benefits of Data-Driven Financial Management
Here's what you get by forecasting your cash flow and sales:
1. Insights into Your Spending
Cash flow forecasts give you a holistic picture of payments that aren't typically reflected in a P&L statement. For example, if your agency secured a loan and is paying it back, those monthly payments won't be included in your P&L.
Comparatively, this info will be included in your cash flow statement, providing insights into your company's spending and the actual cash balances.
2. Improved Knowledge of Cash Balances
It's critical for business owners to know the optimal amount of cash they need to run the business successfully. This is the most important thing a cash flow report can accomplish.
Managing your cash flow allows business owners to determine whether they have a surplus or deficit of funds. If you have excess funds, you can invest that money, and if you're in a deficit situation, you can look for external financing to reach your optimal cash balance.
3. Short-Term Planning
Cash flow forecasts become particularly useful to companies when it comes to short-term planning. You need your agency to meet obligations, such as paying vendors and more.
Because managing your cash flow can give a view of the actual financial position of a company at any given time, it can also help business owners project future cash flows and keep track of spending to meet short-term goals.
4. Prevent Crisis in Business
Because cash flow forecasts give you insights into whether you have a surplus or cash deficit, the report can help you with crisis management. If you can predict potential cash shortages in the near future, you may be able to devise ways to help the agency avoid such problems from happening in the first place.
How Dryrun Can Help Business Owners Manage Their Cash Flows and Create Data-Driven Forecasts
To make sound business decisions, you'll need a data-driven financial management tool that can give you complete visibility into your business cash flows.
One such tool is Dryrun—a robust financial management software that allows business owners to better manage cash flows and keep the financial health of their businesses in check.
Dryrun provides a direct connection to the data from QuickBooks, giving you a clear understanding of your business's current and future financial situation. This allows you to make informed business decisions about the deployment of cash and ride out the storms of an unpredictable industry.
With Dryrun, business owners can keep an eye on their cash flows and make decisions based on data rather than intuition. This leads to smart money management decisions, allowing owners to take on less work at the highest possible price and, ultimately, increase their profits.
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Fight 'Feast or Famine’
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Spot the peaks and valleys ahead of time so that you can adjust your capacity, backfill sales, and pick and choose the best projects, generating more money with the same team.
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