The first step to improving cash flow performance is producing cash flow forecasts. There are many different ways of creating a cash flow forecast and, depending on the nature and maturity of your business, sometimes a simple Excel spreadsheet will suffice. What’s more important than the system you are using, though, is the information you include in it. Business intelligence (BI) is the process of converting data into meaningful information that can help identify trends, shape decisions, and increase operational efficiency. It involves implementing the right processes and tools to gather, organise, interpret and in some cases visualise data. The end goal is to get an improved view of the business across all areas of its operation. This article looks at the type of data SMEs might look at to help improve its cash flow visibility and performance. Some of these processes can be automated through BI tools and software which is now more accessible and affordable for SMEs. But data can also be gathered manually and consolidated to improve cash flow analysis simplify decision-making. Below are some of the areas SMEs should consider investigating to improve their cash flow understanding. \tHow long do customers take to pay invoices on average? According to a study by accountancy software provider Sage, 17% of all payments to UK small and medium-sized enterprises (SMEs) are late. Understanding the average length of time it takes your customers to clear their invoices will help you forecast when the cash owed will hit your account. Furthermore, a more detailed analysis, will help identify those accounts that might need more regular chasing. \t How long do you take on average to pay suppliers? Understanding how long it takes you to pay suppliers will help you better map your cash outflow forecast. It may alert you to the fact that you are paying suppliers before they are due or incurring extra costs for penalties relating to last payment. Evidence of regular, prompt payment may also help you negotiate better terms with your suppliers. \tHow much stock or inventory needs to be held? Your cash flow can be improved by not tying up too much cash in surplus stock or inventory. But owners must operate with a degree of balance. Stocking on the low side is likely to improve cash flow, as you are only paying out for what you need right now. However, this runs the risk that the business is less adaptable to increase in demand. Alternatively, overstocking to current demand may involve procuring stock that could perish, become obsolete or go out-of-date (such as food items, chemicals, fashion items or fads), might tie up valuable cash that could be otherwise put to work. Businesses should regularly perform inventory analysis and look at the Inventory Turnover Ratio and the Day Sales of Inventory (DSI) as well as your average order fulfilment time to assess what your optimum stock levels of inventory should be. \tWhat can I learn from previous years’ trading? When looking at your inventory levels, you must consider what is right for the expected level of demand. A good start for this is looking at previous year’s trading patterns, especially in more seasonally impacted businesses. Looking at last year’s sales numbers will give a good basis for determining a performance benchmark and alert you to any weekly or monthly performance that might impact your cash flow further down the line. Equally, analysing your cost base for the timing and extent of any price increases in your suppliers, rent, utilities and staff wage bill will help build a more accurate cash flow forecast. \tDo we have any lead indicators? There may be certain activities or events that you can use as a lead indicator for sales performance. These may be external – such as a sporting event, national occasion, or extreme weather event – that are likely to provide a short-term boost to sales and can be factored into a forecast. Equally there may be lead indicators within your business that help you improve the accuracy of your forecasts, and therefore your overall cash flow. These might be about establishing correlations sales numbers and variables such as website visitor numbers, sales meetings, marketing campaigns or staff absences. Finding all the right data can feel daunting for time-poor SME owner. But by asking the right questions and implementing the right tools and processes, small businesses can gather actionable business intelligence that helps improve their overall understanding, drive cash flow performance and ultimately fuel growth. At Capify we offer a range of business loans to help support your business through high and low periods. Check to see if you’re eligible for one of our loans with our online eligibility checker. Or, if you’d prefer to talk to a member of our team, we’d be happy to guide you through the process. Give us a call today on 0800 151 0980.