forecasting has become a critical component for the success and
failure of small businesses.
Consequently, SMEs are now spending more time managing cash coming in
and going out of the business in order to improve financial
performance and eliminate operational efficiencies.
Dr Yudhvir Seetharam, Head of Analytics for FNB Business says
adequately keeping track of customer invoice payments while making
sure the business has enough stock and revenue to pay employees can
prove to be difficult for small businesses that are just starting out.
"Furthermore, when the economy is not doing well, business owners
often spend every minute projecting cash flow to avoid risks."
However, this is not practical as business owners may be required to
focus their attention on other areas of the business. The challenge
lies in accurately and efficiently collecting data, analysing it and
using the information to make strategic business decisions.
According to Dr Seetharam, predictive analytics tools can be a
solution to this problem as they would allow business owners to
produce valuable insight from financial data. This would make the
process of cash flow management more efficient by eliminating human
error and improving accuracy as the systems use proven models and
formulas to analyse the information.
"The insight can be used to determine where the business is falling
short, allowing management to make key strategic decisions. For
example, a business that is facing challenges due to late invoice
payments can offer customers discounts for paying earlier and free up
cash in the process," says Dr Seetharam.
Having a positive cash flow balance can make SMEs more competitive,
placing them in a good position to take advantage of business
opportunities.
There are a number of free and commercial online predictive analytics
tools that SMEs can use for cash flow management. For example, FNB
offers its customers a free online solution known as Instant Cash Flow
which shows a business' actual historical cash flow movements as well
as projected cash flows for the upcoming months. It produces graphs
that are calculated by analysing historical patterns from transactions
in the client's bank statements.
As a result, businesses are able analyse the data as it comes in,
making cash flow forecasting a seamless process. Moreover, SMEs can
establish benchmarks for when the business has more cash reserves. In
this way they can seamlessly transfer surplus funds into an
appropriate investment account, and back again in time for when they
may need them. Data then becomes a planning tool that businesses can
use to maximise return on cash reserves.
"With cash flow management being a key ingredient for business
success, there is no reason why SMEs should not consider using
predictive analytics to increase efficiency and complement their
financial management tools," concludes Dr Seetharam.
