Cash Flow and Profitability Analysis
from Investing Enhancing Systems, Inc.
Software to budget and monitor cash flow while maintaining profitability.
Most successful managers know that “Ca$h Flow i$ King”. Cash Flow is the flow of cash into and out of the business. A company has to pay its bills to stay in business. That means there must be cash available in the company’s checking account(s) to pay the bills. Most business accounting packages give management a false sense of security because they usually identify invoices as revenue in the income statement. Unfortunately this revenue isn’t cash and bills can’t be paid with it.
Business Owners must understand the ebb and flow of the cash the company has at its disposal. This software is intended to help in this understanding.
The software allows the business owner to identify the timing for expected order entry, invoicing and cash revenue for each customer. It identifies the flow of cash into and out of the company including that which does not appear on the income statement. It also monitors profitability in a cash flow crunch.
The
software uses Microsoft Excel as the calculating platform. Various tabs link the
orders entered data with the time before invoicing and the time before expected
payment for each customer. Changes in Cost of Goods Sold and Operating Expenses
can be revised for growth or downturns. Management can involve Sales in the
forecasting process and set up a tracking system for improving sales and
incentivizing the Sales Force.
Balance Sheet and Cash Flow tabs show where the cash is going to and coming from
on a real time basis. Monthly variance report tabs allow the input of actual
data each month to determine where budgeting needs to be improved.
This software is primarily a teaching and budgeting tool. You can set the software to start at any month of the year. It is probably best to start the Analysis budgeting at the beginning of the fiscal year, or a calendar year, or a quarter, since most accounting systems are set up on that basis. The time period is six (6) months. It is too hard to budget cash much longer than six (6) months.
Many managers think that if revenues and profits are increasing, cash flow should not be a problem. Actually the opposite is true. If revenues are increasing, a company has to buy more stuff to make products and maybe hire more people to handle the increase. These things have to be paid for and usually the payment occurs before the invoice is cut and payment from the customer is received.
This software is intended to forecast cash flow and profitability on a cash basis. It is also used to analyze history. The worksheet tabs in the Workbook are set up for a six month period. If you are beginning at any time but the first month of the year, you can start inputting data for the current month and run through the next six months. Or you may want to go back one or two months and put in actual data. This may help in projecting the data forward for the balance of the six month period.
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