What to Do When a Predictive Alert Sounds the Alarm

Posted on 31st January 2017 in The Forecast

Written by Daniel Killoran

We would all like to know if we are going to hit any sticky cash flow moments in the future or if our sales are going to reach a new high. In this blog, we’ve asked one of our in-house Management Accountants to give you some insight into how you can get the best from your KPIs with Predictive Alerts. We’ll run through an example of what to do and show you just how easy it is to have a handle of your business even while you sleep.

Planning your future with Scenarios is at the heart of FUTRLI (pronounced Future-lee) and the rich data that is created there, holds the key to your success. Since their launch, Predictive Alerts have been one of our most popular features. They are used by accountants and business owners to keep a watchful eye on the financial future of their operations. Just like an alert on your iPhone, you set them and forget them. There is no need to repeatedly check the implications of fresh financial data and your changing assumptions, we’ll take that stress away. Our cloud platform does all that hard work for you, warning you to any problems that develop on the horizon. 

Your Alert Dashboard

Futrli Alerts Dashboard

Our Alerts are linked to the Scenario engine so they remain relevant due to our seamless integration with Xero or Quickbooks Alerts can monitor all kinds of measures of financial health and with your entire Chart of Accounts and Formulas at your disposal, these can be as simple or complex as you need them to be. Your first step is to choose which area of the business you are going to monitor and the second is to decide upon a predetermined threshold that you will work within (anything above/below we can warn you about).

Let’s walkthrough some examples…

Bank Balance Alert

One handy Alert can focus on future bank balances. Yes, it is fairly basic but almost always critical. For example you can set it to send an email should future balances, given current levels and projected activity, go below £5,000. We would advise that you add a threshold limit so you will be warned if you go within 20% of this, but the amount can be anything you choose.

Recruitment of New Sales Staff Alert

This Alert is a little more complex. Imagine you are a company with a Recurring Revenue Model and you have your staff projections loaded into FUTRLI as non-financial information. You could set a formula driven predictive alert to tell you when you will need to hire new staff or, equally, when you may have too many.

Alerts will predict future issues so be prepared

In the examples discussed, causes and solutions will be fairly easy to determine but this may not always be the case. Imagine this Scenario: you run a growing cash sensitive business and are concerned that you may end up in a position where cash reserves cannot cover liabilities. This is a pretty standard situation for many SMBs so it’s something you must tackle with your eyes wide open.

A smart move would be to set up an Alert that keeps an eye on the cash ratio, and set it to go off should current liabilities outweigh available cash at any point in the future.

An Alert has been triggered, what do we do?!

As with most growing businesses, there’s a 99.9% chance that the owner is busy with other things and therefore has minimal time to start digging into financials to work out what the problem is. You’ve already saved time with automated Alerts so the next step is to use your Dashboard. A Board setup which has all the key information to hand will help you visually pinpoint the problem. Where it is coming from, how bad it is, and what it can mean for future cash flows.

The first place to look would be the main dashboard containing the top level KPIs.

Top Level KPIs on a FUTRLI Dashboard

 

It is apparent straight away that there is a problem. Beginning in January and extending into March, the ratio gets as bad as 0.6 in February, meaning that cash will only cover 60% of the liabilities.

Either the cash has dropped or the liabilities have gone up. A quick check of the bank balances below, show that we are ahead of where we expected to be, making the problem unlikely to be anything to do with cash.

Comparing Actual vs Projected Cash at Bank on a FUTRLI Comparison Card

The Accounts Payable Card would be the other side of the coin and a quick look indicates a big jump towards the end of December, a jump that should be easily identifiable by any business owner who has FUTRLI bringing the data to life in this way.

Rolling Accounts Payable Forecast in FUTRLI

Understand why, make better decisions

In the example used above, it may or may not be the case that a payment plan already exists for this spend. Having an Alert to inform you that cash won’t cover future liabilities, and a tool to investigate the cause of this, FUTRLI enables you to take action straight away and nip any problem in the bud. This lowers your cashflow risk and keeps your time free to focus on running your business.

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