Why Profit Doesn’t Guarantee You Won’t Run Out of Cash
It’s entirely possible to show healthy profits in your P&L and still run into a cash crunch. Timing differences between revenue and collections, inventory purchases, capital spending and debt service can create severe liquidity stress. That’s why cash flow forecasting—especially short-term views like a 13-week forecast—is one of the most important responsibilities in finance and treasury.
The Limits of Spreadsheet-Based Forecasting
Many companies still build cash forecasts in Excel, pulling data from ERP, banking portals and departments via email. Common issues include:
- Version control nightmares when multiple teams edit the same file.
- Manual data refresh that’s outdated before the forecast is finalized.
- Opaque assumptions that make it hard to understand what’s driving the numbers.
- No systematic way to compare forecast vs. actual and improve accuracy.
These problems undermine trust in the forecast and make it less useful for real decisions.
How Cash Forecasting Software Changes the Game
Dedicated cash management and forecasting tools integrate with ERP, AR/AP systems and bank feeds to:
- Automatically pull opening balances from all cash accounts.
- Use transaction-level data for expected inflows (invoices) and outflows (POs, payroll, tax).
- Support driver-based projections for items like sales, collections and capital spending.
- Consolidate multiple entities and currencies into a single forecast.
Instead of copying and pasting, finance teams spend their time reviewing and refining assumptions.
Short-Term vs. Long-Term Cash Views
Most organizations need multiple horizons:
- A daily or weekly 13-week forecast for near-term liquidity decisions.
- A quarterly or annual forecast integrated with budgets and long-range plans.
- Scenario-specific views for funding events, M&A or large capex.
Cash forecasting software can roll these up into dashboards so CFOs and treasurers see not just today’s cash, but how it’s likely to evolve.
Collaborating Across FP&A and Treasury
Cash forecasting sits at the intersection of FP&A and treasury. To work well, your process should:
- Use FP&A’s revenue and expense forecasts as inputs for medium-term cash views.
- Leverage treasury’s insight on debt, investments and covenants.
- Align assumptions about DSO, DPO and inventory turns.
When both functions work from a shared tool and shared data model, differences in assumptions become transparent rather than a source of confusion.
Scenario Planning and Stress Testing
Forecasts are most valuable when they help you prepare for different futures. Cash forecasting tools support scenarios such as:
- Downside demand with slower collections and tighter credit.
- Post-acquisition with new debt and integration costs.
- Investment cases where new hires or capital projects pull cash forward.
By comparing scenarios, CFOs can decide when to draw on credit lines, adjust spending or seek additional financing.
Measuring and Improving Forecast Accuracy
Forecasting improves when you close the loop. Cash forecasting software can track:
- Variance between forecasted and actual cash positions.
- Which categories (collections, payables, capex) drive most of the error.
- The impact of discipline in AR and AP on forecast reliability.
Over time, finance teams refine drivers and assumptions, building executive confidence in the numbers.
Final Thoughts
Cash flow forecasting and liquidity planning are no longer nice-to-have; they’re essential for resilience. By pairing integrated software with clear ownership across FP&A and treasury, finance leaders can move beyond spreadsheet guesswork and steer the company with a much clearer view of its cash runway and options.