Cutting through the complexity: Simplifying financial management for SMBs

Cutting through the complexity/ Simplifying financial management for SMBs

Preferred CFO outlines a study that investigated why the majority of small businesses fail within the first five years. The study explains that: “82% of the time, poor cash flow management or poor understanding of cash flow contributed to the failure of a small business.” Other reasons include:

  • Business plan: Lack of a well-researched business plan.
  • Pricing: Failure to include all costs when pricing a product.
  • Unrealistic expectations: Sales projections are too optimistic.

You need timely and accurate information to operate your business. Brightflow AI’s integrated data aggregation helps SMB owners see the big picture, make informed business decisions, streamline business operations.

To illustrate, assume that Julie operates Sunrise Products, an eCommerce business that sells skin care and makeup products. Julie is creating a business plan for 2025 and hopes to raise additional capital. 

Multiple sources of data

Sunrise sells 35 different products on its website, and the company is planning to add 10 new products in 2025. Brightflow AI provides detailed sales projections on all of Sunrise’s products. 

Demand for individual products can fluctuate sharply, based on seasonality. Some of the best-selling products have sales peak during the summer months, while other products sell more in the fall and winter. Sunrise uses Brightflow AI weekly and monthly reporting tools to monitor total sales and sales by product.

Scenario analysis

Sunrise has performed detailed market research to estimate 2025 sales for the 10 new products. Management creates three revenue scenarios, based on the worst-case, expected-case, and best-case estimate for new product sales.

The revenue scenarios are used to plan inventory purchases for 2025. For example, the expected level of sales for the Warm Glow lipstick is 10,000 units. Management plans to purchase 6,000 units for beginning inventory, and purchase more inventory as sales increase.

Brightflow AI creates sales projections using three different scenarios for each of the 10 new products.

Projecting costs

In addition to inventory, Sunrise projects marketing, advertising, IT costs, and home office costs (legal, accounting, etc.) for each month of 2025. Sunrise pays a monthly fee for IT costs. Marketing and advertising costs fluctuate, depending on the timing of product promotions. 

Forecasting cash flow

The Brightflow AI platform combines revenue forecasts, expense planning, and other data into a single cash flow projection that rolls forward from one month to the next. The ending cash balance in March, for example, is the beginning cash balance for April.

If specific month’s ending cash balance is negative, Sunrise borrows from a line of credit (LOC). The cash flow projection assumes excess cash is used to pay down the LOC as soon as possible. This strategy minimizes interest expense on the loan.

Managing the unexpected

Effective financial management requires owners to change their assumptions based on new information. Leveraging technology helps business owners quickly change variables in a financial forecast and view the updated results.

In the last month of 2024, three events force Sunrise to change its 2025 business plan:

  • Vendor issue: A vendor supplying two of Sunrise’s 10 new products goes out of business. Sunrise eliminates the two new items from the 2025 business plan.
  • Pricing issue: Sunrise must reduce the price of a top-selling skin care product, because new competitors are selling the same product at a lower price.
  • Economic issue: A number of research firms issue stronger economic forecasts for 2025. Sunrise increases the company-wide sales projection by 10%.

Brightflow AI can integrate these changes and quickly produce an updated business plan, with detailed reports on sales, costs, and other variables. Use technology to fully automate financial management to save time and improve decision making. Brightflow AI simplifies financial management for small and mid-sized businesses.

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