QuickBooks Cash Flow Projector – Limitations and a Solution (Part 1)

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

overview

Business economics is like your garden. Just as you have more than one tool to maintain your garden, you need more than one tool to manage your finances. You cannot think of using your lawnmower 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 businesses, but there are limitations to what it can do, especially when it comes to cash flow projections. This situation can be expected as accounting deals with the economic past / present, while the forecast deals with the economic present / future. That said, QB is widely accepted and used by accountants, such as bookkeepers and accountants, as well as small business owners and other non-financial professionals. As of early 2008, over 3.7 million companies were using QuickBooks, and their share of retail units in the business accounting category was 94.2%. [per press release, Intuit, Feb 19th, 2008].

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

A cash flow projection is a matter of making good and realistic estimates of how much you want to sell and when, what it will cost, when and what and when your expenses will be, ie. when and when vs. payout and when. Every company needs to create these projections on a regular basis because a company’s income may vary (e.g. lowering sales, seasonal fluctuations, etc.), but expenses do not disappear (e.g. payroll may change, but fixed expenses such as utilities and mortgage deeds change) very little) . To achieve a realistic projection, it is best to use real data instead of estimates where possible. How can a company prepare for the future without a projection? Without a projection, how will a company successfully go through cash crunching periods?

What tools are built into QuickBooks?

QuickBooks has two important cash projection tools or reports built into the application. The Cash Flow Projector tool (found under Business / Planning and Budgeting) and the Cash Flow forecast (found under Reports / Business and Financial). The projector tool is a 6-week view, while the cash flow forecast is typically used for a one-year forecast / projection. They do not use the exact same information to produce their projections, and since one is a tool while the other is a report, the UI differs.

What are the limitations and what is the solution?

In Part 2 of this series, we will focus on the key limitations of the QuickBooks Cash Flow Projector tool. Part 3 of this series reviews a specific add-on tool that addresses these key issues.