Forecasting cash flow is fundamental to financial planning. It serves as a lighthouse for businesses, keeping them on track as they grow. Excel was never intended to be a cash flow forecasting tool, yet a recent study found that 54% of businesses use it as such. As the business world continues to grow and change, so too must our methods of managing forecasts.
In this article, we will look at the potential risks of Excel cash flow forecasting. We will also look at some new methods of managing a forecast and why they might work better for businesses on the move.
The Shortcomings of Excel in Modern Cash Flow Forecasting
Without a doubt, Excel is an all-purpose tool packed with varied functionalities, and many business owners feel at ease with its grid-like layout. Yet when it comes to the practice of Excel cash flow forecasting, the limitations include the following:
- Human error
- Lack of real-time data
- Limited scalability
- Inability to integrate with other systems
A forecasting model can be well-structured but still unreliable if the person building it makes mistakes. However, it is still possible to utilize existing systems with cash flow software for Excel to combine old methods with updated financial practices.
How Do Excel’s Limitations Lead to Cash Flow Problems?
Today’s business world requires information to be available instantly. If someone forecasts the business’s cash flow using Excel, he or she can be pretty confident that the forecast is valid for the present moment. After an hour or a day, the validity of that forecast can be called into question, especially if more events have occurred that affect cash flow than have occurred that affect cash flow than have affected cash flow in the past.
Excel doesn’t mesh well with other key financial systems, like accounting software, customer relationship management (CRM) systems, or invoicing platforms. This non-integration results in data silos that make it hard to see the total picture of an organization’s financial health. And when cash flow forecasts miss the mark or come in late, businesses can get blindsided and find themselves in seriously dangerous financial waters.
The Time and Resource Drain of Manual Forecasting with Excel
When it comes to cash flow management, people often forget to consider just how much work is involved when using Excel. As a business grows, so does the labor required to keep it on the straight and narrow of its core financials.
The hours devoted to keeping these spreadsheets up to date could be more wisely spent on the kind of strategic thinking that enables a business to thrive. In contrast to a spreadsheet—or even a series of spreadsheets—an automated cash flow forecasting tool is a time saver by design. These cash flow forecasting tools work with what you can think of as an accounting “backbone,” and they directly connect to your accounting software, not your Excel files.
How Do Automated Cash Flow Forecasting Tools Outperform Excel?
Because cash flow management software such as Cash Flow Frog receives data straight from your financial systems, the opportunity for human error virtually disappears. There’s no necessity for anyone to enter numbers or formulas, which means that forecasts might actually be more accurate, and everyone knows what the cost of a forecast being wrong is.
These tools can scale from the smallest businesses to the largest enterprises and handle the kind of complexity a lot of us throw at the forecasting process, with multiple revenue streams and, quite often, different currencies.
If you’re ready to leave behind Excel for an automated cash flow management system, you shouldn’t fear the transition. Follow these steps, and the layout of the tools with accessible features will feel a lot like a friendly Cash Flow Excel workbook.
How to Transition from Excel to Automated Cash Flow Management
Moving from Excel to a new platform can be a big change for your finance team. Most automated tools are user-friendly and come with helpful tutorials, so getting your finance team up to speed should not take too long. After all, you’re in the finance automation business now, and your team should understand how to use the tools that are working in the background to free up their time.
Once your new platform is fully implemented, keep an eye on it. Your forecasting process might now be better than it was with Excel, but if it isn’t, you need to correct the course and figure out why and how to get it to optimize its performance.
Final Thoughts
Today’s rapidly changing financial world necessitates that companies use solutions that are not only accurate but also immediate and flexible. Unfortunately, many businesses continue to rely on Excel, which is not capable of delivering the needed timely, accurate, and scalable results. For that, we have to turn to cash forecasting tools like Cash Flow Frog, which are automated and far more efficient for business cash flow management.
