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Managing Cash Flow in 2021

The insight provided by an updated, thorough examination of upcoming cash flows can help business owners make more informed decisions and best leverage the cash they’re generating. Let’s look more closely at some leading practices for generating a cash-flow projection and how it can help your business.

Managing Cash Flow in 2021—With Real-Time Bookkeeping

While most companies keep a laser-like focus on their profitability, many don’t pay near enough attention to their cash flow. In fact, a 2018 report* by the Small Business Administration’s Office of Advocacy points out that low sales and related cash-flow problems are the top reason businesses fail.

And with the business world changing so rapidly today, cash-flow management is trickier than ever—and all the more important.

“Companies fail due to cash-flow issues far more than due to profitability,” says Nelson Tepfer, manager partner with ProCFO Partners, which provides growing companies with executive financial managers and growth architects.

Given that, companies need to carefully track and project their cash inflows and outflows. A cash-flow forecast predicts a company’s cash position at a particular future date or time frame. It starts with current cash balances and then adds expected cash inflows (mostly from sales) while subtracting expected cash outflows (mostly expenses, debt repayments and capital expenditures).

The insight provided by an updated, thorough examination of upcoming cash flows can help business owners make more informed decisions and best leverage the cash they’re generating. Let’s look more closely at some leading practices for generating a cash-flow projection and how it can help your business.

Get real (time bookkeeping)

Generating a cash-flow forecast that can guide decision-making is made much easier with real-time bookkeeping—which means that your financial information is current and not lagging weeks or months behind. For instance, with a real-time bookkeeping system, the deposit of a client’s payment is automatically reflected in the company’s cash and accounts receivable. “There’s no need to wait for the deposit to be manually matched to the right account,” Tepfer says.

Real-time bookkeeping essentially enables information to be delivered to the company’s decision-makers as they need it, says Bradley Sprong, a Partner and the Private Industry Tax leader with KPMG LLP. “They’re able to make informed decisions far more quickly,” he says.

It also helps business owners avoid missteps that can erode confidence in their businesses, Sprong says. One common misstep: delaying payment to a supplier because of a temporary cash crunch. If the business owner has a reliable cash-flow forecast, he or she can anticipate a cash crunch and take steps to mitigate it, such as renegotiating payment terms or even postponing purchases until the crunch abates. “Once you lose the confidence of suppliers, customers, or banks, it becomes an uphill battle to regain it,” he says.

The concept of real-time bookkeeping represents a shift from traditional bookkeeping, where many businesses could afford to wait until after the end of the month to update their books. Today, fast-paced changes that affect businesses from all directions mean that owners can’t wait for their financial information to catch up.

The payoff of real-time financials

Having real-time bookkeeping supports real-time financial information. The pace of change in business is getting faster and having accurate and easy-to-update cash-flow forecasts is now imperative. Here are three key reasons:

Up-to-date balances

The starting point for cash-flow forecasting is knowing your current balances—including cash, receivables, payables and inventory. With real-time financials, you’re using today’s balances, not balances that are 30 days old. If you’re working with balances that are outdated, you’ll either have incorrect cash-flow projections or you’ll have to spend time reconciling the old balances with what’s really going on in the business today.

Smarter decision making

With more accurate cash-flow projections that are based on real-time financials, you can now make much better decisions. Here are just a few examples of important questions that real-time financials can help you answer:

●      Can you afford to take on that rush order that will boost revenue by 10% but require you to first purchase additional inventory and add an employee?

●      Can you take advantage of a supplier’s offer to discount 3% by paying early?

●      Do you need to pay off a large credit card balance over time, paying interest, or can you afford to pay the balance in full?

Securing financing

Real-time bookkeeping is also critical to any business that’s seeking financing, Tepfer says. Most lenders and investors expect credible, updated cash-flow statements from businesses seeking money, so they can gain a clear idea of how they’ll be repaid.

How to forecast right

Ideally, a business can forecast its cash flow to about 13 weeks—or one financial quarter. To ensure the information remains updated, you’ll want to create what’s called a “rolling forecast.” Each week, you add one more week into the future and delete the week that just occurred.

And once such a process is in place—and based on real-time financials—you gain confidence by having an accurate and up-to-date picture of your financial position.

“Confidence in your business makes a big difference in the long run,” Sprong adds. “And not just confidence from the people you’re paying, but also your customers, your banks and everybody else.”

KPMG Spark is a real-time online accounting solution that comes with the experience and services of a human bookkeeper. Both can help you better manage your company’s cash flow and capture the insight that will help you improve operations and grow your business. Schedule a consult [ADD LINK] to learn more and find out if Spark is the right fit for your bookkeeping needs.


The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG LLP.

This blog article is not intended to address or provide advice concerning the specific circumstances of any particular individual or entity and does not constitute an endorsement of any entity or its products or services.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

The following information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.

KPMG SparkApril 2, 2021Posted In: Business Tips


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