6 reasons every SME needs to invest in enhanced cash flow forecasting capabilities

The headache of SME’s in this fast-paced, AI-driven economy is often, “How best do we deal with cash flow?” Cash flow is the lifeblood of any small to medium-sized enterprise (SME)

Cash Flow is not much more than boring spreadsheets and complicated numeric patterns. A lot of SME leaders are dead scared of investing in the right forecasting tool because they are well…boring. I felt the same way too, but you just may be blindsiding your business and missing out on the very tools you need to make that business jump you have needed.

As an entrepreneur myself, I have been on both sides of the divide and I can confidently give you these strong reasons to invest in the best tools out there.

1. Your expansion dreams need funding

SMEs in an expansion phase often and need expansion capital especially in forms of loans from lending partners and banks.

Sadly, many countries overlook SMEs in their creating access to more lucrative albeit higher risk loan offerings via financial institutions.

However, your business needs to appear solid and have low-risk indicators to be seen as attractive to your lending partners. This is the same whether your partners are a bank or microlenders.

Proper Cash Flow forecasting can paint you in the right light and maximize business funding. The ability to have excellent and quick cash flow forecasting capabilities vastly increases SME’s chances towards attracting business financing.

In other words, you can integrate your cloud-based accounting data from apps like QuickBooks into it and it works off from the data there. This makes for easier to really use accounting data to make decisions rather than drudging through boring cash flow spreadsheets which are hard to maintain and can be very error-prone.

2. You are probably praying for grants

The same principle applies to this point as it does to lenders. While banks and lenders of all sorts need to see just how you look on paper and your future potentials to partner with you.

Governments, individuals and Organizations that give grants need to know they are sowing in the right soil and so they need a solid representation of your business cash flow, risk level and projections.

Generally, Providing investors/Grantors with a cash flow forecast for a best, average, and the worst scenario will instill confidence and trust in the CEO’s abilities, and make it easier to raise more investment.

3. You need to know your credit risk assessment and what kind of credit to take

Cash flow forecasting does quite a bit for SMEs with regards to accessing grants and loans, but more so it helps you acquire a credit risk assessment which enables you to know if you should take a loan or apply for a grant realistically (if you qualify for a loan/grant).

This reduces the frustration, which is the basis for many CEOs quitting. It enables you to know when you qualify, what you need do to qualify and if you qualify it helps you know what kind of loans you need. A regular loan, a line of credit etc and what ceiling you should aim for.

A risk assessment is, in essence, a testimony to the health of your business. PayPie is one company that has taken strides in developing great risk assessment facilities to reflect all-round financial health. Basically, their risk score tool more accurately depicts how others view your business in terms of trust and attractiveness to customers or just simply to monitor your score as a measure of your own financial health.

4. You would want to know if you are headed for some trouble

I often call a great Cash flow forecast a ‘Cash prophecy’. When done properly you can Identify shortfalls ahead of time.

Forecasting reveals your future bank balance and allows you see when you may have a cash shortage that could affect your business long before it happens.

It also gives you time to do handle it before it bites you. For SMEs it’s a tremendous advantage to be able to identify a cash gap ahead of time.

Prevention, as they say, is better than cure.

5. You want to be able to pay suppliers when due

The integrity of your business and the willingness of your partners to continue to partner with you is often tied to this single aspect.

Cash flow forecasting helps you understand how much cash you will have in the bank at the due times of payment and hence, if you can afford to pay on time, or if you should devise a way to appease your suppliers or manage their expectations ahead of time. The goal is never to appear like you are ignoring them.

6. You always want to stay within budget

What’s a budget if it’s not followed? There are an astounding number of SMEs that go about improvising and running ahead without a functioning budget.

This is another key reason investors aren’t attracted. It’s also a reason for frequent shortfalls. Tracking budgets are necessary and achievable with the right cash flow forecasting tools.

A profit and loss or a balance sheet will give you a snapshot of what is happening right now, but it won’t show the future in terms of the cash you will actually have. This makes it impractical, but a cash flow forecast helps you compare what you think is going on with what is really happening and helps you adjust to stay in budget.

I know you don’t like boring yourself with financials, but stop to consider how you may be short-circuiting your business growth. Getting cash flow forecasting tools and resources is a necessity in the increasingly complex business terrain. That is all that should matter to you.

(Featured image by DepositPhotos)

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DISCLAIMER: This article expresses my own ideas and opinions. Any information I have shared are from sources that I believe to be reliable and accurate. I did not receive any financial compensation for writing this post, nor do I own any shares in any company I’ve mentioned. I encourage any reader to do their own diligent research first before making any investment decisions.