How To Choose Your Forecasting Tool?

A cash flow forecasting tool will save your business time and improve the accuracy of your forecasts. But how do you know which tool is the right choice for your business? Let’s take a look at some important factors to consider when choosing your cash flow forecasting tool.

Payment Schedule

Unless your business is cash-based only, you likely send out invoices to customers who pay at a later date. You may have payment terms of:

•       30 days
•       60 days
•       Some custom arrangements with your customers

In either case, your business doesn’t necessarily receive the proceeds from the sale at the time of the transaction.

One thing to consider when choosing a forecasting tool is how it will manage your payment schedule. Your payment schedule will have an impact on your forecast. You may have made a sale today, but you may not receive the funds from that sale for another month.

If you’re not considering your payment schedule, then you may be incorporating the proceeds from this sale before you even receive them. In this case, your forecasts would be inaccurate and unreliable.

Some cash flow forecasting tools ignore the timing of payments or assume that your actuals and budget are entered on a cash basis.

Consider tools that give some flexibility and allow you to set up profiles for different types of accounts. If the tool can take things one step further and make calculations based on your average debtor or creditor days, that’s even better.

The more flexibility you have in how your data is gathered and added to forecasts, the more accurate they will be.

Salary And Payroll Taxes

Typically, accounting systems record wages on a gross basis, and tax deductions are sent to a liability account for later payment.

Ideally, your cash flow forecasting tool should operate the same way. It should allow you to budget for net wages and have withheld taxes as a separate expense.

If the tool does not handle salary and payroll taxes this way, it may skew your forecast.

Balance Sheet Adjustments

Using a tool for real time cash forecasting is ideal. Some cash flow forecasting tools ignore the movements on your balance sheet, which can have a significant impact on your forecasted bank balance. Balance sheet adjustments need to be considered if you want to create a forecast that’s reliable and worthwhile.

It’s important to choose a tool that will also take into consideration:

•       Dividend payments
•       Drawings
•       Loan repayments
•       Loan acquisitions
•       Asset purchases or sales

The best forecasting tool will incorporate these items into your forecasts for greater accuracy and reliability.

If your forecasting tool cannot account for balance sheet adjustments, then it will be challenging to create accurate forecasts with the most up-to-date information.

Cash Flow Analysis

One of the great advantages of using cash flow forecasting software is that it can help assess a business’s future short term cash needs, such as debt payments. It does this automatically, which saves you time and frustration.

Ideally, you should choose a forecasting tool that allows you to analyze your cash flow in different ways. You should be able to choose from a variety of options based on current and future risk appetite as well as market conditions. Additionally, you should be able to make adjustments to remove any unknowns and put your business on track to meet your cash goals.

Forecasting platforms with robust analysis tools help paint a more accurate and thorough picture of your business’s financial health. They also give you more insight into your overall performance and where you excel or struggle.

Choose The Ideal Forecasting Tool for Your Requirements

There are many forecasting tools out there, but some will be better suited for your business and needs than others. Consider features that will save you time and improve the accuracy of your forecasts and statements. Don’t make your decision too hastily and consider the pros and cons of each tool before making a commitment to one.

Once you’ve found the right application, the next step is to learn how to use the market forecasting tool.

Finding and implementing the right cash flow forecasting tool can help you create more reliable and accurate forecasts while saving time and money.