If you’re wondering which cash flow forecasting tools are best suited to the needs of your business, this guide is for you.
It could be that you’re currently using spreadsheets and are wondering if it’s worth investing in something more sophisticated.
Or you may be looking to upgrade your cash flow forecasting software and need to compare the leading offerings.
In this guide, we explain all you need to know to choose the right cash flow forecasting tool – whether you’re a small to medium-sized business, franchisor, accountant or business advisor.
Cash flow forecast definition
For those new to cash flow forecasting, let’s first cover the basics. Also known as a cash flow projection , a cash flow forecast is a method of estimating the flow of cash into and out of your business over a specific future period.
It helps you predict your business’ cash balance for that period by analysing expected revenues and costs. You can perform a projection for the coming weeks, months or even years.
Two of the biggest benefits of a cash flow forecast is that it helps you prepare for financial risks looming on the horizon as well as upcoming opportunities to invest cash surpluses.
Cash flow forecasting tools are critical to gaining this foresight, which enables you to make more strategic business decisions and plan growth initiatives.
4 key components of a cash flow forecast
A comprehensive cash flow forecast hinges on several fundamental components:
- Opening cash balance is the cash available at the beginning of the forecast period. It forms the starting point for the forecast and provides a baseline against which future cash movements are measured.
- Cash inflows are the expected sources of money entering your business during the forecast period. This typically includes the likes of sales revenue, loans, investment returns and interest earnings.
- Cash outflows are the expected payments your business will need to make, covering fixed costs like salaries, rent and loan repayments as well as variable costs like raw materials, delivery expenses and commissions.
- Closing cash balance are the funds remaining at the end of the forecast period. It’s calculated by adding net cash inflows and outflows to the opening balance.
8 factors affecting cash flow projections
Performing a cash flow projection involves considering several contextual factors that can influence your future inflows and outflows. Let’s look at the most important ones to consider:
- Sales pipeline: The opportunities in your sales pipeline and how long it typically takes to close deals.
- Timing of inflows: Longer customer payment terms delay cash inflows, while tighter payment terms can accelerate inflows.
- Business expansion: Launching new products or entering new markets often requires significant upfront investment but can also lead to higher sales.
- Market conditions: This includes seasonal fluctuations, competitor activity or changes in market demand. For instance, a competitor launching a new product might reduce your sales.
- Economic conditions: Factors like inflation, interest rates, economic downturns and reduced consumer spending can strain cash flow.
- Expense variability: Unexpected increases in costs, like raw materials or labour, can disrupt cash flow.
- Capital expenditures: Investments in equipment, technology or infrastructure can create large cash outflows.
- Inventory management: Holding too much inventory ties up cash, while too little can lead to missed sales opportunities.
Exploring cash flow forecasting tools
Choosing the right cash flow forecasting tool can significantly impact the accuracy of your financial projections. Let’s look at five types of tools commonly used for cash flow forecasting, and the advantages and drawbacks of each.
1. Spreadsheets
Inexpensive and simple to start using, spreadsheets like Excel and Google Sheets are a widely used cash flow forecasting tool, particularly for business just starting out.
Pros:
- They offer flexibility and customisation, allowing you to create bespoke forecasting models to suit specific needs.
- Widely accessible and most people are familiar with its basic functions.
Cons:
- Prone to human error, as manual data entry can lead to inaccuracies that impact forecast reliability.
- Time-consuming to update and manage, particularly as complexity grows, and may struggle with large volumes of data or complex forecasting needs.
2. Accounting software
Accounting software like QuickBooks, Xero and MYOB offer built-in cash flow forecasting tools along with those for bookkeeping and invoicing.
Pros:
- Integrated functionality and automation help reduce errors and enhance forecasting efficiency.
- They provide real-time data that can help improve decision-making.
Cons:
- More expensive than spreadsheets, particularly for advanced features.
- May require time to learn the software’s features. They also offer less flexibility in tailoring forecasts compared to spreadsheets.
3. Dedicated cash flow forecasting software
Cash flow forecasting software is specifically designed for managing and analysing cash flow projections.
Pros:
- Include advanced features like real-time data integration and automated reporting.
- Allow you to model different financial scenarios and assess their impact.
Cons:
- Typically more expensive than accounting software or spreadsheets.
- May require training and adjustment time due to its complexity, while integration with other systems can be complex.
4. Enterprise resource planning (ERP) systems
Solutions like SAP and Oracle NetSuite provide cash flow forecasting tools as part of a broader suite of business management tools.
Pros:
- Offer a comprehensive solution that integrates cash flow forecasting with other financial and operational functions.
- Handle extensive data and complex forecasting needs for large organisations.
Cons:
- The high cost can be prohibitive for many businesses, who may not need all the features offered.
- Require substantial time and resources to implement.
5. Financial analysis software
Solutions like Fathom, Syft Analytics and Spotlight Reporting offer cash flow forecasting tools along with financial analysis and reporting tools.
Pros:
- Offer three-way cash flow forecasts to project profit and loss, balance sheet and cash flow statements.
- Feature advanced capabilities like scenario planning and rolling forecasts, while making interpretation easy with visual reports.
- Provide a full spectrum of financial analysis tools to track KPIs and perform consolidations and group benchmarking.
- Integrate with accounting platforms to eliminate manual data entry and ensure up-to-date cash flow data.
Cons:
- May require training and time to set up effectively, potentially leading to a learning curve for teams.
- Given the wider range of tools offered, they are generally more expensive than dedicated cash flow forecasting software.
Choosing the right cash flow forecasting tool
The capabilities you will need in a cash flow forecasting tool will of course depend on who you are. Here, we look at what small to medium-sized businesses (SMBs), financial advisors and franchisors should prioritise when considering a solution:
SMBs
SMBs often have fluctuating and narrow cash flow margins that require tools that offer:
- Customisable cash flow reports tailored to the specific financial realities of their business.
- Scenario planning to model different financial outcomes, helping them better prepare for uncertainties.
- Real-time cash flow and financial monitoring to quickly take proactive measures to avoid shortfalls.
Financial advisors
Financial advisors managing diverse client portfolios typically require a cash flow forecasting tool that provides:
- Forecasts tailored to each client’s unique financial situation.
- Advanced analysis and reporting, including sensitivity analysis and scenario planning, to provide clients with a range of financial outcomes and recommendations.
- Features that facilitate collaboration with clients like shared dashboards, custom reports and the ability to easily communicate cash flow insights directly through the platform.
Franchisors
Managing franchise locations presents unique challenges, requiring a cash flow forecasting tool that can:
- Aggregate data from multiple franchise locations to generate cash flow forecasts that provide a clear picture of the entire franchise network’s financial health.
- Benchmark not only cash flow performance but also that across other financial metrics, like profitability, revenue growth, debt, asset usage and efficiency.
- Integrate with existing systems like POS and HR software, ensuring all relevant data is captured in cash flow forecasts and financial performance analyses.
Comparison of leading cash flow forecasting software
Let’s compare the features and benefits of three leading cash flow forecasting software solutions – Fathom, Spotlight Reporting and Syft Analytics.
1. Cash flow forecasting capabilities
Fathom:
- Rolling live cash flow forecasts update as often as your financials, while three-way forecasting provides a detailed, comprehensive view of cash flow.
- Creation of various scenarios to see how changes in revenue, expenses or other factors might impact future cash flows.
- Forecasts based on key business drivers to understand the impact of different activities on cash flow.
- Visual reporting to easily understand cash flow trends and projections.
Spotlight Reporting:
- Integrates profit and loss, balance sheet and cash flow projections into one view.
- Detailed scenario planning to model best and worst-case scenarios.
- Consolidated cash flow forecasts for groups, making it ideal for multi-entity organisations.
Syft Analytics:
- Detailed cash flow forecasting tools with the ability to forecast income, expenses, and cash balances.
- Scenario analysis to test different assumptions and their impact on cash flow.
- Forecasting based on KPIs, linking financial and operational metrics.
- Automated cash flow forecasts with real-time data integration.
2. Ease of use and implementation
Fathom:
Known for its intuitive interface, quick setup thanks to integration with accounting platforms like MYOB, Xero and QuickBooks, and customisable forecasting models to fit specific business needs.
Spotlight Reporting:
Can build forecasts within 30 minutes and access training and support to maximise the platform’s capabilities.
Syft Analytics:
Offers simple navigation and setup, integration with accounting software, as well as customisable dashboards and reports.
4. Reporting and analysis
Fathom:
- Allows the creation of custom reports and dashboards tailored to business needs.
- Tracks KPIs alongside cash flow forecasts.
- Includes benchmarking tools to compare performance against industry standards.
Spotlight Reporting:
- Known for visually engaging reports that surpass standard accounting software.
- Access to a wide variety of charts and templates to present financial insights.
- Supports group consolidations and benchmarking across up to 500 entities.
Syft Analytics:
- Offers highly customisable reports and dashboards that feature visuals for easy interpretation.
- Enables detailed KPI analysis linking financial and operational metrics.
5. Specific benefits and use cases
Fathom:
- Best for: SMBs, franchisors and financial advisors looking for a straightforward yet powerful tool for cash flow forecasting and financial analysis.
- Strengths: Ease of use, driver-based forecasting and strong visual reporting capabilities.
Spotlight Reporting:
- Best for: Accounting firms and multi-entity businesses, and those needing robust three-way forecasting and scenario planning.
- Strengths: Comprehensive three-way forecasting and ESG reporting.
Syft Analytics:
- Best for: Businesses needing detailed, real-time cash flow forecasting tools and analysis, particularly those with complex data requirements.
- Strengths: Real-time data integration, detailed KPI forecasting and customisable reporting.
Tips to get the most out of cash flow forecasting software
- Regularly update forecasts to reflect changes in your business environment like unexpected expenses or revenue fluctuations.
- Use scenario planning to develop best-case, worst-case and most likely scenarios to prepare for different financial outcomes and uncertainties.
- Use rolling forecasts that extend the projection period each month or quarter, keeping your forecasts continuously updated.
- If your software offers other financial analysis tools, you can track KPIs that directly impact your cash flow to better spot trends and make timely adjustments.
- Take advantage of integrations with your accounting software to reduce manual work, minimise errors and ensure forecasts are always based on the latest data.
Conclusion
Cash flow forecasting is a powerful tool that helps better prepare businesses for financial challenges and strategically plan for opportunities. It enables:
- Franchisors to more effectively manage cash flow across multiple locations and gain insights to guide franchise-wide strategies.
- SMBs to get clear visibility into their financial future, allowing them to navigate tight margins and make the most of cash surpluses.
- Financial advisors to offer clients sophisticated analysis and tailored insights into various financial scenarios.
By now you should have a good idea of the strengths and weaknesses of different cashflow forecasting tools. We hope this guide has also given you a sense of how using advanced cash flow forecasting software like Fathom can greatly enhance forecast accuracy and save you time.
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You can also view our webinar for a helpful run-through of the platform’s cash flow forecasting features for businesses.
