Backing Up SMBs’ Cash Flow ‘Gut Feelings’ With Data

Cash flow forecasting may appear to be a sophisticated technology reserved for treasurers and chief financial officers (CFOs) at larger enterprises. But cash flow is the lifeblood to any business, small companies included, and the pandemic has made it abundantly clear that small- to medium-sized businesses (SMBs) cannot afford to ignore a cash flow management strategy that is able to peer into the future.

Indeed, SMBs have quite sophisticated cash flow forecasting needs, according to Victor Lang, co-founder and chief operating officer of Australia-based giniPredict.

“You’d be surprised how much small businesses think about cash flow,” he told PYMNTS in an interview.

The company recently launched as a solution provider designed to lower the barriers to cash flow forecasting technology for SMBs. Predicting the future of financial health isn’t nearly about survival, he said, but about being able to drive growth even in the most volatile of economic climates.

Fueling Resilience

In a recent survey, giniPredict found that more than 60 percent of SMBs are already creating financial forecasts at least once a week, with cash flow their most pressing concern.

Forecasting abilities can raise visibility into key unknowns for SMBs, including how many resources are available to hire new staff, or how much cash is available for strategic investments.

“It’s not just about making sure you can keep the lights on,” Lang said. “When you understand your cash flow, you know how much you can invest to grow.”

One of the biggest factors impacting SMB cash flow is accounts payable (AP) and accounts receivable (AR) practices. Late B2B payments continue to add pressure on business cash flow throughout the world, and in Australia, regulators are taking notice. With all businesses looking to strengthen cash flow, Lang noted that many companies are looking to defer invoice payments as long as possible.

Many entrepreneurs will typically attempt to remedy this cash flow pressure by relying on “gut feelings” about which invoices are likely to be paid late, Lang said. Forecasting technology can take the guesswork out of this process, allowing businesses to make the most out of the capital they do have, while preparing proactively to address any late payment issues down the road.

Backing Up That ‘Gut Feeling’

Key to a robust cash flow forecasting strategy is data. And while more SMBs continue to digitize and gain access to more rich data, Lang acknowledged that increasingly, SMBs are struggling to unlock that information stuck behind silos.

“As a business uses more digital tools, the more isolated data sources there are, and the harder it becomes to get a complete holistic picture,” he said. “Data that is siloed in different platforms is hard to analyze, and many SMBs rely on exporting things back into Excel, which people often want to get away from anyway.”

In an effort to address the market’s lack of cash flow forecasting tools designed for SMBs, giniPredict made its market debut with an eye on unlocking that data via third-party integrations. SMBs need access to this data in real time, while they also need technology that can analyze it using historical patterns to derive the most accurate outlooks.

But cash flow forecasting isn’t simply about attempting to predict the future. As the coronavirus crisis highlighted, there will inevitably be market events that cannot be predicted.

Lang noted that forecasting technologies and strategies must also be able to support SMBs’ ability to react with agility as market changes occur. While technology could not have necessarily predicted the pandemic, it can accelerate a business’ ability to understand current risk exposure, quickly react to changing market conditions and continually plan for further changes in the future.

As giniPredict’s own research revealed, many SMBs today are caught off guard when cash flow problems arise. According to the company, 44 percent of businesses that ran out of cash said they were surprised when it happened.

“Even in an unpredictable world,” said Lang, “this number should be zero.”