QuickBooks Cash Flow Projector - Constraints and a Solution

This three part article series will review the constraints and issues of the Cash Flow Projection tool built into QuickBooks ®, and review an add-on tool that addresses the key issues.

Overview

Business financials are like your yard. Just as you have more than one tool to maintain your yard, you will need more than one tool to manage your financials. You would not think of using your lawn mower as a hedge trimmer, and you should not expect to use your bookkeeping/accounting program to produce accurate forward looking financial reports. QuickBooks (QB) is a wonderful business accounting package for small and medium sized businesses, but there are limitations in what it can do, particularly in the way of cash flow projections. This situation is to be expected, since accounting deals with the financial past/present, whereas forecasting deals with the financial present/future. That said, QB is commonly accepted and used by accounting professionals, such as bookkeepers and accountants, as well as small business owners and other non-financial professionals. As of early 2008, over 3.7 million businesses were using QuickBooks and its share of retail units in the business accounting category was 94.2%. [per press release, Intuit, Feb 19th, 2008].

Cash flow projection: what is it and why do I need it?

A cash flow projection is a matter of making good and realistic estimates about how much you are going to be selling and when, what it will cost and when, and what and when your expenses will be, i.e. money-in and when vs. money-out and when. Every company needs to regularly create these projections because a company's income can vary (e.g. slowing sells, seasonal fluctuations, etc.), but expenses do not go away (e.g. payroll can change, but fixed expenses such as utilities and mortgages change very little). To achieve a realistic projection it is best to use real data instead of estimates, wherever possible. Without a projection, how can a company prepare for the future? Without a projection, how will a company transition through cash-crush periods successfully?

What tools are built into QuickBooks?

QuickBooks has two key cash projection tools or reports built into the application. The Cash Flow Projector tool (found under Company/ Planning & Budgeting), and the Cash Flow Forecast report (found under Reports/Company & Financial). The Projector tool is a 6 week view, while the Cash Flow Forecast is typically used for the one year forecast/projection. They do not utilize exactly the same information to produce their projections, and since one is a tool, while the other is a report, the user interface differs.

What are the constraints and what is the solution?

In Part 2 of this series we will focus on the key constraints of the QuickBooks Cash Flow Projector tool. Part 3 of this series will review a particular add-on tool that addresses these key issues.

Lynn Luzzi is president of ezTRUNNION LLC, a software development company focused on providing affordable solutions for small businesses to help them survive and thrive. Cash Flow Projection & Cash Flow Management software is available at 

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