As the economy continues to contract, optimal cash flow management and forecasting has become a critical component for the success and failure of small businesses.
Consequently, SMEs are now spending more time managing cash coming in and going out of the business in order to improve financial performance and eliminate operational efficiencies.
Dr Yudhvir Seetharam, Head of Analytics for FNB Business says adequately keeping track of customer invoice payments while making sure the business has enough stock and revenue to pay employees can prove to be difficult for small businesses that are just starting out.
“Furthermore, when the economy is not doing well, business owners often spend every minute projecting cash flow to avoid risks.”
However, this is not practical as business owners may be required to focus their attention on other areas of the business. The challenge lies in accurately and efficiently collecting data, analysing it and using the information to make strategic business decisions.
According to Dr Seetharam, predictive analytics tools can be a solution to this problem as they would allow business owners to produce valuable insight from financial data. This would make the process of cash flow management more efficient by eliminating human error and improving accuracy as the systems use proven models and formulas to analyse the information.
“The insight can be used to determine where the business is falling short, allowing management to make key strategic decisions. For example, a business that is facing challenges due to late invoice payments can offer customers discounts for paying earlier and free up cash in the process,” says Dr Seetharam.
Having a positive cash flow balance can make SMEs more competitive, placing them in a good position to take advantage of business opportunities.
There are a number of free and commercial online predictive analytics tools that SMEs can use for cash flow management. For example, FNB offers its customers a free online solution known as Instant Cash Flow which shows a business’ actual historical cash flow movements as well as projected cash flows for the upcoming months. It produces graphs that are calculated by analysing historical patterns from transactions in the client’s bank statements.
As a result, businesses are able analyse the data as it comes in, making cash flow forecasting a seamless process. Moreover, SMEs can establish benchmarks for when the business has more cash reserves. In this way they can seamlessly transfer surplus funds into an appropriate investment account, and back again in time for when they may need them. Data then becomes a planning tool that businesses can use to maximise return on cash reserves.
“With cash flow management being a key ingredient for business success, there is no reason why SMEs should not consider using predictive analytics to increase efficiency and complement their financial management tools,” concludes Dr Seetharam.
Alan Straton
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