The average small business owner might not be as familiar with cash flow as they should. However, if you’ve got an awesome accountant and/or bookkeeper on your side, they can wax poetic on the virtues of a good cash flow projection.
Once a business starts forecasting cash flow, they’re quickly inspired and empowered by the insights it provides. This is why ForwardAI has included both monthly and daily cash flow forecasting within its analytics dashboard.
Accountants and bookkeepers who use QuickBooks Online (QBO) know that the Cash Flow Projector tool is only available within QuickBooks Desktop. But hope is not lost! In this article, you’ll learn how to use ForwardAI to project cash flow by simply connecting a business’ QBO account.
Table of Contents
- 1 Creating a cash flow forecast in QBO
- 2 Forecasting cash flow — monthly projections
- 3 Forecasting cash flow — daily projections
- 4 Analyzing cash flow — accounts receivable
- 5 Analyzing cash flow — accounts payable
- 6 Comparing income to expenses
- 7 Generating a breakdown of expenses
- 8 Creating a cash flow statement in QBO
- 9 Assessing credit risk
- 10 Taking action through insights
Creating a cash flow forecast in QBO
This cash flow forecasting app will then do a deep dive on the business’ financial data, looking at hundreds of variables. (And we’re just getting started…) The assessment of these variables is then presented in a unique analytics dashboard, with all of the cash flow metrics detailed in the cash flow tab.
Forecasting cash flow — monthly projections
The data for the monthly cash flow forecast pulls from the company’s income statement, balance sheet and cash flow statement. The graph shows three months of actual cash flow and another six months of forecasted cash flow. The forward-looking projections are based on the numbers from the previous three months.
Cash flow is broken into the three main categories:
- Operating cash flow — inflows and outflows related to the sale of goods and services.
- Investing cash flow — inflows and outflows that stem from the sale or purchase of capital investments.
- Financing cash flow — inflows and outflows from borrowing activities or external investors.
Monthly changes in cash flow also helps identify patterns in order to leverage peaks and overcome the valleys.
Forecasting cash flow — daily projections
The daily cash flow projection software shows the beginning and ending cash balance for each day — based on current and previous data in the business’ main financial reports.
Daily projections help you get more granular in your cash flow analysis. For example, a pattern of negative cash flow days can help pinpoint if a business is giving their vendors more time to pay than their debtors are giving them.
Analyzing cash flow — accounts receivable
Receivables and payables are key components of cash flow. With ForwardAI you can generate an assessment of each one. Assessing accounts receivable helps identify overly generous credit terms and outstanding invoices that negatively impact cash flow and a business’ overall financial health.
In the accounts receivable analysis, you’ll be able to quickly access:
- Total invoices raised — for a period of 12 months, regardless of whether the invoices are open or closed.
- Monthly invoices, payments and open AR — laid out in a convenient bar graph. (Open AR = (previous month’s open AR + current month’s invoices) – payments.)
- Top five exposures — showing which customers represent the highest amounts of outstanding invoices.
Analyzing cash flow — accounts payable
Just as accounts receivable shows inflows, accounts payable details outflows. Crucially, if there are late payments which affect the business’ short- and long-term credit profile, as lenders base their conditions on previous payment histories.
The accounts payable analysis features:
- Total bills received — for a period of 12 months, regardless of whether the bills are paid or unpaid.
- Monthly bills, payments and open AP — laid out in a convenient bar graph. (Open AP = (previous month’s open AP + current month’s bills) – payments.)
- Top 5 exposures — showing which vendors represent the highest amounts of outstanding bills.
Comparing income to expenses
In order to provide a historical and top-level perspective, ForwardAI also graphs total income and expenses for a period of 12 months. This yet another way to highlight trends, such as when expenses either exceed or come close to surpassing income.
Generating a breakdown of expenses
Delving further into examining cash outflows, ForwardAI’s cash flow analysis also breaks down expenses on a monthly basis, displaying 12 consecutive months. It’s a quick way to provide a snapshot of a business’ main expenses throughout the year.
Creating a cash flow statement in QBO
If all you want to do is create a cash flow statement, simply go to the QBO reports tab and select “statement of cash flows.” However, why have just a cash flow statement when you can have a comprehensive cash flow forecast? Plus, our dashboard includes a cash flow statement as well.
Assessing credit risk
The main question that ForwardAI’s financial analysis answers is, “How does my business look in front of lenders?” We provide insights into cash flow as it’s closely tied to determining the business’ ability to manage its finances and credit.
However, our algorithm also examines a range of variables related to risk in order to create a proprietary risk score. Unlike traditional credit scores, it’s based on a business’ own real-time accounting data, instead of third-party sources. It doesn’t replace a traditional credit score. Instead, it serves as an internal benchmark of how the business is currently performing.
If a business is planning grown and knows that it’ll need funding in the future, it can use the risk score and the insights from the assessment to be better prepared when applying for financing.
Taking action through insights
If you’re taking the time to forecast cash flow and evaluate risk, you’re already interested in troubleshooting. But you’re also interested in solutions as well. This is why ForwardAI also includes a list of targeted insights, that pinpoint problem areas which need to be addressed.
These insights into financial health and borrowing capacity include:
- Cash flow coverage ratio — the ability to pay interest and principal amounts on borrowed funds.
- Creditor days — the average amount of time needed to settle debts with trade suppliers.
- Current ratio — the ability to meet short-term debt obligations within the next 12 months.
- Debt-to-equity ratio — shows how much debt is used to run the business as well as the value of the assets compared to the debt.
- Debtor days — how long it’s taking to collect payment from debtors.
- Interest coverage ratio — determines how easily a business can pay interest expenses on outstanding debt.
- Leverage ratio — how much operating and financing leverage a business has in order to manage debt or acquire additional funds.
- Net worth — the total value of the assets after all debts are paid.
- Return on capital employed — how well a business’ capital investments are paying off.
- Revenue growth — compared year over year.
Start forecasting cash flow today. Sign up for ForwardAI and connect your business.
ForwardAI’s cash flow forecasting is currently free. In the future, each user will be limited to two businesses. Volume pricing for accountants and bookkeepers will also be introduced.
In the meantime, try it out and let us know what you think. We mean it, we value your feedback.
The information in this article is not financial advice. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional.
Stock image via Pexels. App images via a ForwardAI demo account.