9 Steps For Using Cash Flow Modelling Software In A Small Business

Sep 11, 2023 | Business, business advice, Business growth, General, Money, Software

9 Steps For Using Cash Flow Modelling Software In A Small Business


Cash flow – the heartbeat of any business, big or small. It’s cash that fuels your operations, pays the bills and keeps your business alive. But what happens when the cash tap runs dry? Panic stations and sleepless nights. All is not lost though because we’re diving into the world of cash flow modelling software in the quest for financial zen.

What is cash flow, anyway?

Cash flow is the difference between money coming in and money going out. Got more money flowing in than flowing out? That’s positive cash flow and everyone’s happy. On the flip side, if your expenses are outpacing your income, you’re in negative cash flow territory and that’s somewhere you don’t want to be for too long.

The key elements to keep control of are:

Inventory – try not to overstock your business as you don’t want too much cash tied up in goods that are yet to be sold

Accounts receivable – don’t allow your customers to delay their payments to you. Keep tight control over the amount of credit you grant

Accounts payable – renegotiate any short payment terms so you can keep more of your cash in your bank account for longer.

Why the fuss over cash flow?

Here’s why you need to pay attention to it:

Stay Afloat: Positive cash flow is the life vest that keeps your business from going under. No cash, no paying the bills, and before you know it, your business is doing the sinking Titanic impression.

Smart Decisions: Imagine making business decisions blindfolded – not cool, right? Knowing your cash flow helps you manage hiring, marketing and investing with confidence.

Growth Potential: Cash flow isn’t just about survival; it’s your ticket to business growth. With a healthy cash flow, you’ve got the funds to invest in new equipment or premises and expand your operations for future success.

Cash Flow Modelling Software: Your Secret Weapon

Now, let’s talk about the real hero in this story – cash flow modelling software. Think of it as a crystal ball, helping you see the future of your cash flow. This software breaks down the peaks and troughs of incoming and outgoing cash, giving you the power to make the right decisions.

So what exactly can you do with cash flow modelling software?

There are many different software options available on the market but they often have similar features, including:

Data Input: The ability to input various sources of cash inflows and cash outflows, including sales revenue, operating expenses, loan payments, investments, taxes, and interest.

Scenario Analysis: Create scenarios to explore how different factors impact cash flow, such as changes in sales volume, pricing, expenses, interest rates, and inflation.

Forecasting: The software can use historical data to create forecasts for future cash flows based on different assumptions and scenarios.

Graphs and Charts: Visualisation tools display cash flow projections in graphical formats, making it easier to understand trends and patterns.

Sensitivity Analysis: Test how changes in certain variables affect your cash flow, helping identify risks and opportunities.

Reporting: Create reports that summarize cash flow projections, highlighting key insights and trends.

Integration: Some cash flow modelling software can integrate with other financial tools and accounting software, streamlining the process of inputting data and maintaining accuracy.

Collaboration: Certain tools allow multiple users to collaborate on cash flow projections, facilitating teamwork and communication.

Export: The ability to export cash flow projections and reports in various formats, such as Excel spreadsheets or PDFs.

Assumptions Tracking: Document and track the assumptions made during the modelling process.


9 steps to rock your cash flow with software

  1. Lay the foundation

Start by feeding your software all the financial data – income, expenses, loans, investments – you name it. Some software even lets you import data from spreadsheets or your accounting software.

  1. Craft the baseline

Your software can whip up a baseline cash flow model using historical data. This helps you spot patterns and you may even realise that your cash flow is more seasonal than you thought.

     3. Future gazing

Use your software to forecast different scenarios – the best-case, worst-case, and everything in between. It’s like playing chess with your business’s financial future.

  1. Keep an eye out

Cash flow isn’t a static thing. Regularly update your software with real-time data to compare against your forecasts. This way, you can adjust your game plan as you go along.

  1. Pinpoint trouble spots

The software’s got your back when it comes to predicting cash crunches. Maybe it’s a seasonal slump, delayed payments, or surprise expenses. Spot the danger signs and deal with them before they turn into cash flow nightmares.

  1. Master working capital 

Working capital – the funds you need for daily operations. Your software’s got the inside scoop on tracking inventory levels, accounts receivable, and accounts payable. Keep the cash flowing smoothly and you’ll be hitting your growth targets in no time.

  1. Invest like a pro

Eyeing new equipment or expansion? Let your cash flow model do the maths. It’ll show you how investments will affect your cash flow, so you can make informed decisions.

  1. Teamwork makes the dream work

Some software lets you collaborate with your team, generating reports that even non-finance folks can understand. Perfect for impressing stakeholders or potential investors.

  1. Trust the experts

While the software is fantastic, a chat with your accountant can’t hurt. They’ll decode the data, guide your moves, and ensure your cash flow forecast hits the bullseye.

Considerations of using cash flow modelling software

The upsides of using cash flow modelling software can be huge but don’t forget that there are a few potential pitfalls to avoid:

Complexity and Learning Curve: Cash flow modelling software can be quite tricky, especially for those who aren’t familiar with financial concepts and calculations. It can take time to learn how to use the software and interpret the results correctly.

Garbage In, Garbage Out (GIGO) Principle: The accuracy of cash flow projections heavily depends on the quality of the input data. If inaccurate or incomplete data – also known as ‘garbage’ is entered into the software, the resulting projections will also be inaccurate. This highlights the importance of data accuracy and thoroughness.

Over-Reliance on Technology: Relying solely on cash flow modelling software can lead to a lack of critical thinking and analysis. You might trust the software blindly, ignoring potential discrepancies or unrealistic projections that the software might generate.

External Factors and Unexpected events: Cash flow models are often based on historical data and trends, which might not account for sudden and unexpected events that can disrupt the projected cash flows. Economic recessions, industry disruptions, and geopolitical events, such as a global pandemic or war can all impact cash flow in ways that are difficult to predict.

Human Error: Even with the help of software, errors can occur. Human errors can lead to flawed projections and decisions.

You can mitigate some of these potential downsides by ensuring that the data you use is validated and checked thoroughly before and after input to reduce the chance of errors. Take into account the limitations of any output when making decisions during times of uncertainty and frequent economic change.

Communication is the key

Stay in touch with your accountant, bank manager, stakeholders and senior management team. Sharing your cash flow reports keeps everyone on the same page, ready to tackle any issues that come your way.

Don’t fear asking for help

Got a knot in your stomach over cash flow troubles? Turn to your trusted advisors for a friendly chat. They’re the seasoned experts who’ve seen it all – the financial equivalent of an Olympic champion.

Stay positive

Navigating cash flow can be like trying to win at darts while blindfolded but staying positive and using the right tools is more than half the battle. Remember:

  1. Create a cash flow forecast. Use past data to predict your income and expenses over a certain period of time. This will help you to identify any potential cashflow problems early on.
  2. Track your spending. It’s important to know where your money is going. This will help you work out where you can cut back.
  3. Get paid on time. One of the biggest drains on cash flow is late payments from customers. Collect payments quickly and efficiently.
  4. Negotiate better payment terms with suppliers. Free up cash you can use to grow your business.
  5. Have an emergency fund. If a rainy day arrives, you’ll be able to weather the storm.

Get cash flow modelling software working hard for you

In a nutshell, cash flow modelling software is your secret weapon in the quest for financial harmony. By embracing these 9 steps, you’re not just managing cash flow; you’re mastering it. So, power up that software and let the cash flow journey begin. Here’s to financial prosperity and success!

And if you want to get started with cash flow modelling software, why not give the Numbers Knowhow software a spin? Your business deserves nothing less than the best.

Sign up for your  FREE trial to Numbers Knowhow, the revolutionary cashflow software designed to empower you with the numbers you need to transform your business. With Numbers Knowhow, you’ll have access to powerful tools and features that will unlock a world of financial understanding and growth.

Plan it. Do it. Profit