Understanding 4 core elements of Cashflow and tools to master it – the modern CFO Suite Software stack
Table of Contents
The Basics
Cashflow: Money in and out of your bank account
Interfaces: To Banks, ERP, Invoices, Bookkeeping
Forecasting: Of future Cashflow
Risk: Of going bankrupt
This Blogpost will define goals, struggles and solutions to the CFO job in regard to cashflow / liquidity. Then, a software stack (Combination of software) will be given a recommendation based on company size
Cashflow
Goals, struggles and solutions
Goals: Quick Cash Collection from Debitors; Flexibility in paying Creditors; Optimization of Operations such as Cash pooling / Netting
Struggles: International Transaction fees, Overview of all subsidiaries, compley internal structures, tracking of transactions, categorization of transactions, daily timeliness
Solution: standardisation of workflows and Excel templates, use of automation software, good understanding of processes throughout all employees of the workflow in advanced concepts such as cash pooling and netting
Definitions: Cashflow ; Creditors / Debitors ; Cash pooling ; Netting ;
Solutions: Excel Macros / Work with XML Files that can be extracted to interfaces that need the data / Templating with all stakeholders in a kickoff meeting to ensure all the information can be filled out by each department and employee / Programming a Software that is individualized to the company / Use of the top ten Cash flow softwares – Nr. 1 is Agicap (Recommended) – contact [email protected] in case of interest in an exchange.
Size recommendations: For companies with no subsidiaries: Excel as long as the templating and data inputs (fe. interfaces to bank, ERP, Bookkeeping etc.) makes sense; For Companies with subsidiaries: business software as mentioned above that allow consolidated views of all subsidiaries; For companies with treasury department: Software that allows the assessment of risk by szenario analysis and comparability.
Interfaces
Goals, struggles, and solutions
Goals: Data fluidity and intergrity over entire software stack, easy push of data from banks into cashflowmanagement, then to bookkeeping, then to taxes, then to internal analysis, then back to banks for financing, then back to internal planning and forecasting
Struggles: Manual exports of Data from one tool to another, mistakes in extraction, fe. wrong filters, wrong integration of exported data into the next software, loss of data contexts, different sources of data and different data formats
Solutions: Careful consideration of software stack before buy / Integration decisions – Focus on software that offers high interface connectivity / flexibility or is a all in one solution, consideration of resillience of software stack in case of growth of the company
Definitions: software stack ; Data Fluidity ; Data Integrity ; Bookkeeping ; Financing ; TMS – System (Treasury Management System)
Solutions: Thorough testing of entire cashflow workflow from bank to internal planning and standardising processes for data extraction, data filters, data uploads etc. / Use of automation software, for example Agicap
Size Recommendations: For companies with no subsidiaries: Manual processes as long as enough “Know – How” is in the workflow, automation software helps with onboarding new users as the interface is more user friendly ; For companies with subsidiaries: Automated software that allows interfaces between complex corporation structures such as top TMS Systems or Agicap, which can be seen as “lean” TMS System.
Forecasting
Goals, struggles and solutions
Goals: Understanding future Cash in and Cash out, making investment decisions, Predicting Cash shortages to apply for credits ; Managing payment of creditors and debitors
Struggles: High transaction quantity makes deriving “planned cash” difficult ; Comparison of planned, actual and target income / expenses – Performance analysis ; Trend analysis
Solutions: Analysis / Creation of the process how goals are defined, planned income and expenses are derived from invoices sent and received, and how these planned values are compared against the actual values of bank transactions
Definitions: KPI (Key Perfomance Indicator)
Solutions: Use of tables and formulas to automate the calculation of relevant KPIs after manual inputs of predefined data types ; Fully automated cashflow forecasting in bookkeeping, accounting or cashflowtools such as LucaNet / Diamant / Agicap (recommended)
Size Recommendations: For companies without subsidiaries: consider the detail of forecasting necessary – If only to avoid bankruptcy, then manual check of invoices and rough forecasting in tables, if strategic component important, automated software with fluid interface to invoice management, for example SAP / other ERP Systems; For companies with subsidiaries: automated software standardisation throughout the organisation to gather consolidated information, f.e. with TMS – Systems or Agicap
Risk Management
Goals, struggles, and solutions
Goals: Assessing the risk of investment decisions, Assessing the risk of bankruptcy resulting from an investment, general overview of best- and worstcase scenarios for the next weeks of business
Struggles: high complexity and effort to create multiple scenarios and subscenarios to understand the rippling effects of multiple events and associated risks – Difficult balance between stocking up safety budgets and excess cash investment options
Solutions: Organization of business decisions in a way that make an ordered scenario planning possible, consideration of only “best” and “worst” case scenarios to define a range, integration of a software that allows to contrast different scenarios and subscenarios quickly
Definitions: Bankruptcy ; Scenarios ; ROI (Return on Investment)
Solutions: Making only one relevant investment decision at a time allowing detailed subscenarios for this investment decision ; Calculating only the best and worst by calculating with max. and min. ROIs; Integrating Agicap which allows detailed scenario planning with subscenarios and easy comparability which can be exported into an excel to reason credit decisions with banks
Size Recommendations: Companies without subsidiaries: KISS – Keep it super simple – As much scenarioplanning as necessary to eliminate the risk of bankruptcy and focus on other three aspects of cashflow to reduce the risk further and contribute to operational and strategic excellence ; Companies with subsidiaries: Creation of rough scenarios for subsidiary related scenario planning – detailed scenario planning for corporation level investments, fe. software licenses or market expansions
Conclusion
Software Stack Recommendation
- Liquidity management consists of an understanding of 4 elements: cashflow, interfaces in the software stack, forecasting, and risk management
- Understanding, managing, and forecasting cash flow is complex and leveraged by automating processes with Agicap
- High data fluidity and integrity builds the base for a excellent treasury department with efficient and effective workflows
- For companies with subsidiaries the complexity of business requires an automated tool like Agicap to keep an overview
- The most important role of cash flow management is to always be liquid enough to avoid bankruptcy by assessing risks associated to business decisions