~4 minute read

One of the most impactful ways financial advisors and client relationship managers can bring value to business clients is by providing helpful information and advice on cash flow management strategies.

Cash flow reflects how a business manages its cash position, encompassing the day-to-day activities that impact capital inflow and outflow. When a company manages cash flow effectively, it possesses better growth potential and poses less risk to the bank. That business is more likely to contribute positively to their financial advisor’s portfolio (and, ultimately, the bank’s) success.

Read more: Deliver the Data that Helps Advisors Assess Risk, on Demand

Financial and banking relationship managers require seamless access to a business’s financial data to assess cash flow and make informed recommendations to business clients.

Typically, advisors and relationship managers must sift through a client’s statements or downloaded documents and make calculations to determine the business’s current cash flow.

With Chata, advisors can easily streamline these assessments by leveraging a conversational self-serve solution for data access.All they need is AutoQL embedded in the systems they already use to manage client portfolios.

Bar graph returned for user query show me outstanding debts for Treeline Lumber Ltd

It’s easy to assess risk and understand client cash flow with intuitive access to the information that reveals the true story about a business.

 

For example, a client relationship manager might be advising the owner of a medium-sized lumber company on managing cash flow during an economic downturn. The lumber company needs to maximize its cash flow or look into applying for a loan through the bank to ensure it can continue to grow.

The relationship manager wants to look at the company’s cash flow adequacy ratio and operating cash flow margin. This information will reveal if the company can continue working at its current cash flow state and where it can make adjustments to operations to improve cash flow going forward.

These ratios are usually calculated with numbers the client relationship managers might have to hunt for in their clients’ statements.

Read more: Empower Impactful Data-Driven Cost Management Strategies

The cash flow adequacy ratio reflects whether the capital generated by operations is enough to cover a business’ ongoing expenses. For this ratio, the advisor needs to find total cash flow from operations and divide that by the sum of long term debt paid, fixed assets purchased, and cash dividends distributed.

The operational cash flow margin is a profitability metric that reflects how well a company’s daily operations can transform sales of its products and services into cash. The advisor needs to use the total cash flow from operations, dividing that number by net sales.

Cash Flow Adequacy Ratio and Operating Cash Flow Margin equations

Typically, these calculations are done manually. With AutoQL, users can just ask for the ratio and the answer is returned immediately.

 

Without hunting down or adding up numbers to calculate these ratios, the relationship manager can ask,“What is the cash flow adequacy ratio?” or “Show me operating cash flow margin”. This data gives them an initial overview of the current state of cash flow and profitability that they can explore further, in the moment, with questions like, “What is the current cash on hand?” or “Show me operating cash flow vs. net income YTD.”

The operational cash flow margin is a profitability metric that reflects how well a company’s daily operations can transform sales of its products and services into cash. The advisor needs to use the total cash flow from operations, dividing that number by net sales.

With this information at their fingertips, the advisor or client relationship manager can make recommendations to their client regarding how to improve their cash flow from operations by improving the management of current assets and liabilities. Through this process, the advisor can also determine whether a client is eligible to be approved for future loans or lines of credit.

For banks with proprietary or legacy software, adding increased flexibility to data access and analysis workflows decreases the time and labor spent on data discovery. The time saved can be reallocated to helping clients navigate opportunities, effectively manage operational and credit risks, and strategically expand customers’ portfolios.