Taken with permission from July 12th’s 2018 Apliqo blog post

Cash is king. In CFO circles this is a given. Which is why detailed cash flow planning has long since become the gold standard in modern companies. But many finance departments are still overwhelmed by the sheer complexity of it. This is often due in large part to the fact that they have no process in place or have simply chosen the wrong planning tool. In this blog we will show you why an integrated reporting and planning solution is the best way for a company to improve its cash flow planning on the long term.

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Companies that optimize their cash flow planning have a competitive edge. They can better manage liquidity risk and always know how much liquidity they have and where they have it. And it enables them to allocate capital more effectively, which translates into higher returns. However, the actual planning can take different forms and vary from company to company, with the greatest differences seen in the planning tools themselves. Many companies still rely Excel solutions, while others have software solutions that can’t even show all the components necessary for comprehensive analysis.

The following are some of the most common mistakes in cash flow planning: Only profit & loss models are made, which means you’re focusing too narrowly on the income statement. Operational planning, and in particular demand and procurement planning (S&OP planning), as well as investment planning, all of which can have a major impact on the balance sheet and cash flow, are forgotten entirely. Many companies don’t include these components in the software analyses they use, with the result being that they are left out of the overall analysis. The consequences snowball and companies end up empty handed when it comes to management options and the relevant key performance indicators (KPIs) aren’t included in any performance analysis. Companies are thus unknowingly letting go of a crucial management tool for analyzing the effects on the balance sheet and cash flow, for optimizing finances and for being able to take the right steps at the right time. And exactly those things are necessary for integrated, driver-based planning.

What’s important for cash flow planning is an overall view of all key performance indicators. Even though many companies find it to be a difficult undertaking, the solution is quite simple. The right software solution is well equipped to handle the task of pooling the numerous positions. The only thing the application needs is access to the financial data of the company. This data is uploaded into the application and the software links all the relevant profit & loss and balance sheet positions with the cash flow positions. This ensures that balance sheet transactions are reflected in the cash flow. Every change to cash flow relevant profit & loss or balance sheet positions is mapped automatically.

Using reporting and planning software with cash flow data allows companies to create a transparent view of all KPIs. CFOs will then find it easier to identify the right KPIs, understand sensitivities (including currency effects and temporary liquidity bottlenecks) and use the information to optimize their cash flow planning. This gives them a new management tool with which they can improve the company’s financial positions and use the freed up resources for vital growth activities, such as new production sites, product improvements, investments, marketing, recruiting, etc.

Learn more about accelerating your cashflow modelling & take advantage of a free CMR Assessment