Forecasting Cash Flow in QuickBooks Online

cash flow forecasting in QBO main image

The average small business owner might not be as familiar with cash flow as they should. However, if you’ve got an awesome accountant and/or bookkeeper on your side, they can wax poetic on the virtues of a good cash flow projection.

Once a business starts forecasting cash flow, they’re quickly inspired and empowered by the insights it provides. This is why PayPie has included both monthly and daily cash flow forecasting within its analytics dashboard.

Accountants and bookkeepers who use QuickBooks Online (QBO) know that the Cash Flow Projector tool is only available within QuickBooks Desktop. But hope is not lost! In this article, you’ll learn how to use PayPie to project cash flow by simply connecting a business’ QBO account.

Creating a cash flow forecast in QBO

Put down the pen and paper. Forget about opening Google Sheets or Excel. Simply sign up for PayPie, then connect the business’ account. Forecasting cash flow is really that easy.

The app will then do a deep dive on the business’ financial data, looking at hundreds of variables. (And we’re just getting started…) The assessment of these variables is then presented in a unique analytics dashboard, with all of the cash flow metrics detailed in the cash flow tab.

main dashboard cash flow tab

Learn more about the PayPie QBO integration

Forecasting cash flow — monthly projections

The data for the monthly cash flow forecast pulls from the company’s income statement, balance sheet and cash flow statement. The graph shows three months of actual cash flow and another six months of forecasted cash flow. The forward-looking projections are based on the numbers from the previous three months.

Cash flow is broken into the three main categories:

  • Operating cash flow — inflows and outflows related to the sale of goods and services.
  • Investing cash flow — inflows and outflows that stem from the sale or purchase of capital investments.
  • Financing cash flow — inflows and outflows from borrowing activities or external investors.

Monthly changes in cash flow also helps identify patterns in order to leverage peaks and overcome the valleys.

cash flow forecasting monthly projections

Forecasting cash flow — daily projections

The daily cash flow projection shows the beginning and ending cash balance for each day — based on current and previous data in the business’ main financial reports.

Daily projections help you get more granular in your cash flow analysis. For example, a pattern of negative cash flow days can help pinpoint if a business is giving their vendors more time to pay than their debtors are giving them.

cash flow forecasting daily projections

5 reasons to use PayPie for cash flow forecasting.

Analyzing cash flow — accounts receivable

Receivables and payables are key components of cash flow. With PayPie you can generate an assessment of each one. Assessing accounts receivable helps identify overly generous credit terms and outstanding invoices that negatively impact cash flow and a business’ overall financial health.

In the accounts receivable analysis, you’ll be able to quickly access:

  • Total invoices raised — for a period of 12 months, regardless of whether the invoices are open or closed.
  • Monthly invoices, payments and open AR — laid out in a convenient bar graph. (Open AR = (previous month’s open AR + current month’s invoices) – payments.)
  • Top five exposures — showing which customers represent the highest amounts of outstanding invoices.

accounts receivable

Analyzing cash flow — accounts payable

Just as accounts receivable shows inflows, accounts payable details outflows. Crucially, if there are late payments which affect the business’ short- and long-term credit profile, as lenders base their conditions on previous payment histories.

The accounts payable analysis features:

  • Total bills received — for a period of 12 months, regardless of whether the bills are paid or unpaid.
  • Monthly bills, payments and open AP — laid out in a convenient bar graph. (Open AP = (previous month’s open AP + current month’s bills) – payments.)
  • Top 5 exposures — showing which vendors represent the highest amounts of outstanding bills.

accounts payable

Comparing income to expenses

In order to provide a historical and top-level perspective, PayPie also graphs total income and expenses for a period of 12 months. This yet another way to highlight trends, such as when expenses either exceed or come close to surpassing income.

income and expenses

Generating a breakdown of expenses

Delving further into examining cash outflows, PayPie’s cash flow analysis also breaks down expenses on a monthly basis, displaying 12 consecutive months. It’s a quick way to provide a snapshot of a business’ main expenses throughout the year.

expense breakdown

Handy reference — basic cash flow terms and concepts.

Creating a cash flow statement in QBO

If all you want to do is create a cash flow statement, simply go to the QBO reports tab and select “statement of cash flows.” However, why have just a cash flow statement when you can have a comprehensive cash flow forecast? Plus, our dashboard includes a cash flow statement as well.

cash flow statement in dashboard

Assessing credit risk

The main question that PayPie’s financial analysis answers is, “How does my business look in front of lenders?” We provide insights into cash flow as it’s closely tied to determining the business’ ability to manage its finances and credit.

However, our algorithm also examines a range of variables related to risk in order to create a proprietary risk score. Unlike traditional credit scores, it’s based on a business’ own real-time accounting data, instead of third-party sources. It doesn’t replace a traditional credit score. Instead, it serves as an internal benchmark of how the business is currently performing.

If a business is planning grown and knows that it’ll need funding in the future, it can use the risk score and the insights from the assessment to be better prepared when applying for financing.

risk score

Taking action through insights

If you’re taking the time to forecast cash flow and evaluate risk, you’re already interested in troubleshooting. But you’re also interested in solutions as well. This is why PayPie also includes a list of targeted insights, that pinpoint problem areas which need to be addressed.

These insights into financial health and borrowing capacity include:

  • Cash flow coverage ratio — the ability to pay interest and principal amounts on borrowed funds.
  • Creditor days — the average amount of time needed to settle debts with trade suppliers.
  • Current ratio — the ability to meet short-term debt obligations within the next 12 months.
  • Debt-to-equity ratio — shows how much debt is used to run the business as well as the value of the assets compared to the debt.
  • Debtor days — how long it’s taking to collect payment from debtors.
  • Interest coverage ratio — determines how easily a business can pay interest expenses on outstanding debt.
  • Leverage ratio — how much operating and financing leverage a business has in order to manage debt or acquire additional funds.
  • Net worth — the total value of the assets after all debts are paid.
  • Return on capital employed — how well a business’ capital investments are paying off.
  • Revenue growth — compared year over year.

insights (2)

Start forecasting cash flow today. Sign up for PayPie and connect your business.

PayPie’s cash flow forecasting is currently free. In the future, each user will be limited to two businesses. Volume pricing for accountants and bookkeepers will also be introduced.

In the meantime, try it out and let us know what you think. We mean it, we value your feedback.

QuickBooks and QuickBooks Online are registered trademarks of Intuit Inc. PayPie integrates with QuickBooks Online. It does not integrate with QuickBooks Desktop. 

The information in this article is not financial advice. It does not replace the expertise that comes from working with an accountant, bookkeeper or financial professional. 

Stock image via Pexels. App images via a PayPie demo account. 

Author: Michelle Mire

When not overseeing the PayPie Blog or writing about cash flow and business financial health, Michelle can be found working on her own health by going out for a run.