There are 6 warnings that alert you to possible errors with your project:
If a warning sign is green it means that no alert has been triggered; if it is red there may be an issue that you should check.
The “Financing warning” is the most important warning. That is because if it is triggered, your forecasting is incorrect. Well, that is if you are performing a full forecasting (one where your balance sheet and the way you thinking to forecast the project matters, an approach that is more common when starting a new company; it may not be as relevant for a new project within an already existing company), because if you are looking at a plain viability analysis of a project, the financing will not be relevant to you. But in most cases, the balance sheet and the financing are relevant and must be correct; hence you will want to keep this warning untriggered.
This warning is triggered whenever the simulation of the balance sheet has a negative cash. It means that the operational cash flows, investment expenditures and financing have a combined negative cash flow that in total value is above the amount of cash of the previous year.
How is cash calculated?
Operational cash flows
Operational cash flows register payments of the clients to the company (+), payments of the company to suppliers (-), payments of the company to its employees (-) and tax payments of the company to tax authorities (-). Be aware that payments from clients and to suppliers are usually not instantaneous to an invoice. That is particularly true in almost all B2B comercial relations. Therefore, if a company has many days of accounts receivables, it means that will take some time before it gets payed by its clients.
Investment cash flows
Investment cash flows are based on the purchase of assets and on the receivables from assets that the company may sell. In CASFLO APP it is only possible to forecast the purchase of assets; selling off investment is more uncommon, particularly for entrepreneurship projects.
The financing balance (or financing cash flows) adds the incoming cash from equity, other equity instruments, shareholders loans and financial debt and deducts all cash that was used to redeem any of those items.
Solving a triggered financing
To correct the financing of your project, follow the following steps:
Check if your revenues and costs are well estimated. If these are not adequate, correct them.
Check if your investment is correctly estimated. If it is not, correct it (it may be that you are over-estimating your investment.
Check in which years the financing is negative. If you hover the mouse over the warning it will show in which years it is missing cash.
Increase the financing of your project in the years that have been identified in the dashboard. You can increase it through:
Advice: your project should always have a positive cash balance so, if you have undertaken any change on your project that triggered this alert, it is advisable to increase the financing.
This warning is triggered if, in any of the forecasted years, the corresponding income statement recorded a loss. Although sustaining losses in the first years is common and not unexpected for entrepreneurship projects, you should always check your income statements results when this warning is triggered.
This warning alerts you if the Net Present Value (NPV) of your forecasting is negative. It is quite important, as having a negative NPV means that the project is not viable under the assumptions in that version.
This warning is triggered if, at any of the forecasted years, the total equity on the balance sheet is negative.
This warning is triggered if, at any of the forecasted years, the equity-ratio is below a 0,2 threshold.
This warning is triggered if, at any of the forecasted years, the debt coverage ratio is under 1. It means that in that year, the company is not generating enough operational cash to pay its debt service. It may not be too upsetting if the company holds enough accumulated cash on its balance from previous years, but it is an issued to be looked for.