Cash Flow is king! Ever heard that phrase? There’s a lot of truth in that, especially when the business environment is as challenging as it is today. Competition is fierce, business dynamics are far more complicated than it used to be a decade ago and the “essential” operational costs weigh down businesses. All of this coupled with the ever increasing pressure to keep the products and solutions affordable for the consumer doesn’t make life easy. Yes, Cash Flow is King!!

How to ensure a healthy Cash Flow

Data is critical. Even more critical is “timely” data. Most businesses review their P&L statement and budget vs actuals, monthly or quarterly. Often times, the reports are stating “facts” about an event that took place in the past. Therefore, any corrective measure taken is usually “after” the window of opportunity is long gone.

Here’s an example:

The Actual vs Budget report for first quarter is being viewed on 2nd April. The “fact” comes to light that the company has exceeded budget by 22% on administrative costs on a particular G/L account in January and posted a negative variance of 18% on a revenue account in February. This has affected the bottom line significantly.

Corrective Measure: Adjust the budgets for the next quarter to make up for the loss.

It appears to be a quick effective fix. Not so. The “cash” component involved in the loss for the first quarter is long gone. And there is no guarantee that cost is going to be recovered in the next quarter. Why? Because the window of opportunity was immediately after the event ie when the budget was exceeded in Jan and the revenue didn’t make it in Feb. Adjusting the budgets for the next quarter might potentially help only if the company CAN adhere to the budgets. Often times, this is a struggle because certain costs are unavoidable and the business demands remain the same. It becomes much harder to recover that cash as time goes by. In fact, it is much harder to recover the loss incurred over 3 months than it is to recover the loss incurred over 1 month than it is to recover the loss over 1 week.

Multiply this scenario over a period of 3-5 years. Calculate the cash flow loss. Makes you cringe, doesn’t it? Businesses move on considering the loss as part and parcel of business.

Well, it is not. This is not meant to happen if smart systems are in place.

A good business intelligence tool can help you maintain a healthy cash flow. There are BI and CPM tools available that can help businesses grow steadily whist maintaining a healthy bottom line throughout the year.

A smart BI solution with budgeting and forecasting capability will allow you to setup “alerts” and run background “procedures”.

What does that mean?

An alert lets the system know immediately when there has been a variance in the budget vs actuals. Traffic lights can be set up for this purpose. For eg: The instant an actual exceeds budget over 2%, a red light alert is set up. So also if a revenue is below 90% of budget.

A procedure on the other hand is meant to trigger “action” as soon as an alert is raised.

alertsIn this particular instance, if a GL account turns red on the actual vs budget, a pre-set procedure can automatically update all budgets for the period pro-rated to make up for the cash flow loss, ensuring a healthy bottom line for the period. A corrective measure is taken immediately at the instance of the event.

Such a system not only maintains a healthy cash flow month on month, but also encourages team work.

Now running a budget version comparison every quarter gives the management a clear picture of what went on during the last three months. The management can now make an evidence based strategic business decision to address the departments in question, as opposed to feeling the pressure of incurred budget variances and trying to resolve it by a quick fix.

Business Intelligence solutions are not just reporting tools presenting already existing data in pretty looking charts. They are much more than just that if used cleverly.

But it all starts with choosing the right BI solution. Not all of them out there do budgeting and forecasting. Not all of them support KPIs, benchmarks and predictive analysis. For smart Business Intelligence, you would probably need a combination of BI and Performance Management. Else you can potentially end up with more reports of the same information, except looking much prettier.

In conclusion, I would strongly recommend you involve an experienced business intelligence consultant for a couple of hours prior to considering investing in a solution, who can advise you on important factors to consider and guide you through a decision making process.


Santosh Chandran is the Business Development Manager for BOARD Management Intelligence at Olympic Software. He regularly blogs about business intelligence and corporate performance management. You can follow him on Twitter  or on LinkedIn.  Please contact him directly if you would like to find out how BOARD can improve your business results through better decision making, phone 09 980 3964 or email: