Cash is the most important asset in any business. It’s the lifeblood. It’s what keeps the lights on, and fuels the future growth of the company. If you run out of cash, it’s game over.
Why Cash Is So Important
Cash keeps the business running. Cash is used for things like:
- Paying expenses – the things that are necessary for the successful daily operation of the business like employee salaries, sales and marketing expenses, supplies, and inventory
- Investing in new capital assets to grow the business
- Expanding into new markets
- Launching new products
- Acquiring companies
- Returning capital to investors
Cash is also one of the most important key performance indicators (KPI’s) upon which the health of the business is measured. It’s used to determine things like:
- Company valuation
- Capital efficiency
- Runway – how much cash you spend each month, and how long it will last
- Fundraising requirements – when you’ll need to raise more money before you run out
- Fundraising ability – you’ll need to prove to investors that you are a healthy business that can provide an acceptable return on investment. Cash flow is one of the KPI’s investors look at to make that determination.
So, it’s no wonder that successful business leaders need to keep a vigilant eye on cash flow if they want to continue their success, grow the business, and outperform the competition.
The Problem with Cash Flow
So what’s the problem? The problem is that calculating cash flow can be quite difficult, for a couple of reasons. First is the difficulty of the subject matter. Cash flow is one of the more sophisticated exercises within the accounting discipline. Go talk to a few freshly minted CPA’s and they’ll attest to that! Cash flow accounting rules are full of nuance and intricacies that can be tough to learn, and even harder to execute in the real world. Should I use the Direct Method or the Indirect Method? What do I add back? What do I subtract? What’s the difference between OCF and FCF? How do I handle foreign currency valuations and adjustments? It gets tricky pretty fast.
Second is the technical complexity. Building and managing cash flow balances and roll forward activity in Excel requires a complex web of interconnected tabs and formulas that can easily break and jeopardize the validity of your numbers. Technical software applications aren’t much better, as many software providers in the market today require customers to build custom code for cash flow reporting.
Ok, so cash flow is a critically important measure of business health and future success, and it’s really hard to do in the real world.
So what’s an accountant to do?
Automating Cash Flow Reporting
At Planful, we build innovative cloud-based financial software to help accounting and finance professionals with their biggest challenges – and cash flow reporting, planning, and analysis are at the top of the list. That’s why we’re excited to announce that Automated Cash Flow Reporting will be included in our Summer19 product release.
Planful Automated Cash Flow Reporting automates this complex process for you – so you don’t have to do or think about any of it. It has all of the financial intelligence and business logic built in to manage and track the periodic movement of cash, calculate those tricky accounting rules (including currency valuations and adjustments for international entities), roll forward cash balances from period to period, and provide an easy point-and-click UI to build cash flow statements and reports that show a bread-crumb trail of all of your cash flow activity in the period. This enables you to get right down to the important business of analyzing your cash flow and making those crucial business decisions faster.
And it gets even better! This new capability supports cash planning too. So now it’s easier than ever to forecast the impact that different business scenarios will have on your cash position, giving you the insight and confidence to know that you’ll have the cash you need to keep your business strong and growing.
Be sure to subscribe to the Planful blog to get the latest updates on our Summer19 product release to see a deeper dive into all the innovative enhancements in this release that are making the lives of accounting and finance professionals better and easier.