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Cash flow analysis: a real case of growth and new investments

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Having control of accounting and treasury means carefully and preventively monitoring one’s liquidity, managing it wisely in order to be able to pay supplier invoices in advance, for example, or to earn by exploiting positive cash flow. All this is possible by carrying out an accurate analysis of the forecast cash flow that allows you to know when you can prepare cash and make the best decisions for the maintenance or growth of your business.

The fundamental elements of cash flow analysis

For the analysis of cash flow, attention must be paid to some fundamental aspects that determine its effectiveness, first of all, the set of specificities that characterize each company. Sales channels, payment instruments, and type of customers: are all factors that strongly affect the cash flow, even within the same sector.

When the analysis of the actual cash flow is then started, the time horizon on which to set it must be immediately established based mainly on two factors: the delay in collection and payment times recorded on customers and suppliers and the effective and concrete possibility of integrating such information with forecast data. Often orders and bills are not enough to have valid ones and it is necessary to draw from the previous experience of the people who have always had the company’s numbers in front of them.

To implement the quality of a cash flow analysis, it is also essential to assess the reliability of customers and the mandatory nature of suppliers without falling into the temptation to adopt a prudential approach. In fact, always assuming a lower availability of resources can lead to unnecessary costs, for example, linked to unnecessary or disproportionate forms of financing.

Why software for the analysis of cash flows

Considering these various factors that impact liquidity and the volatility that each sector can present, in addition to that now established in the entire economic context, there is the risk of being caught unprepared if you do not have the adequate tools for cash flow analysis . . Relying on specialized software, such as that of DocFinance, integrated with an accounting management software, means obtaining certain and reliable data on which to base your financial strategy, as well as taking advantage of a series of convenient automatisms that lighten administrative and accounting operations.

From a forecasting point of view, the cash flow analysis makes it possible to simulate the extinction of medium or long-term loans or the detection of any outstanding payments without any extra effort for the user. If used “in the final balance”, on the other hand, it allows to establish the actual contribution of the characteristic and financial management and to carry out a timely verification of the deviations from previous forecasts to identify any critical issues. With a simple spreadsheet, it would be almost impossible to make evaluations at the right time without counting that they would remain in the treasurer’s drawer.

Cash flow analysis in luxury

A cash flow software, inserted in a company, often involves a general streamlining of treasury management both from an operational and strategic point of view. This happened to a company operating in the luxury fashion sector that turned to DocFinance presenting not only the need for a careful analysis of the cash flow but also to restore a constant delay in bank accounting records mainly due to procedures internal initially tolerated and gradually become operational standards.

By setting up the training “in the field” already addressed to the forecasting use of the cash flow analysis, we started from the collections, noting the strong influence not only of the seasonal cycles but also of the different payment methods used, especially on the web. This was a fundamental step for the treasury and for the entire company as well as that of defining the frequency with which to do the analysis so that it was very small but based on consistent data. A third crucial moment of the intervention was the assignment of income and expenses to specific financial categories in order to then be able to carry out a cash flow analysis for each of them and obtain valuable information to evaluate new growth strategies. 

More control, more courage to invest 

Having regained control of its liquidity thanks to DocFinance, the company has shown greater flexibility towards external events, from pandemics to thefts in stores often suffered, but not only. Having in his hands the analysis of the forecast cash flow, he was also able to rationally evaluate the feasibility of an investment that perhaps he would have previously denied and opened an haute cuisine restaurant to increase the quality level of his brand. Again thanks to the Credit score software, it was able with the same conscious coldness to decide to suspend its activities during the pandemic without letting itself be guided by panic. With a more thorough analysis and over a longer period of time, the managers have also come to acquire a new company, again in the luxury sector, where DocFinance will be implemented immediately to monitor such a delicate phase. Important initial costs are expected but will then be gradually absorbed, with times and methods that can be calculated with the cash flow analysis and therefore manageable in the best possible way.

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