Businesses using Xero often need to produce cashflow forecasts. This article reviews its Cash Flow capabilities compared to some Xero cash flow alternatives.
Xero now includes recurring payments to bills and invoices which is one less thing to add manually but it still requires considerable effort. While the built-in forecast in Xero has improved in recent years, it still requires considerable manual intervention. However, there are three key situations when it comes to cash flow forecasting:
- Daily and transactional forecasts to manage short-term cash flow for a business..
- The bank or lender expects a full 3-way forecast for long-term planning.
- A consolidated cash flow forecast to get a snap shot of a group of companies.
Let’s explore some Xero Cash Flow Alternatives to find which will best suit the various situations.
Traditional Cash Flow Forecast
In the past, spreadsheets have been the primary tool used by accountants and businesses to create cashflow forecasts. There are various good reasons for using a spreadsheet:
- You can do something quick and easy with a minimum level of skill;
- There is someone in your team with highly advanced Excel skills who has the knowledge required to build a full 3-way forecast.
However, most of us mere mortals have a tendency to get lost in circular references. In particular, when it comes to forecasting debtors, creditors and GST/VAT, long before we even attempt to balance the P&L forecast, balance sheet forecast and cashflow forecast.
The good news is that there are several Xero add-on apps that promise to help you create a cash flow forecast. To help you decide which should be on your shortlist, we’ve reviewed the main contenders here. As with any software, there is no one-size-fits all and you should start with your Needs Analysis.
Float Cashflow Forecasting
Float stands out from the others in our selection because it is purely cash-based. It started life as a transactional, daily forecasting solution much like the short-term cash flow projection that’s now within Xero itself. If you are looking to predict how much you will have in the bank next Tuesday, this is the app to start with.
You can add in monthly budgets for up to 3 years ahead but be aware that these are not your traditional budget. Essentially, they are a cash-based projection. For example, for the Sales line, don’t enter what you expect to invoice each month, use what you expect to receive. For many small businesses, such as retail or hospitality, this fits with the owner’s understanding of their takings each day. It doesn’t include anything on account, but it does include GST/VAT. Some accountants react in horror but there is plenty of evidence that people find this useful.
Castaway has traditionally been a desktop application. The cloud version has been released and with time they will rollout their full functionality. Following on from its predecessor, WinForecast, Castaway is a veteran of consolidating 3-way forecasts. Whilst the currency options are limited (just a fixed exchange rate per company), the accounting integrity is top class. To complete consolidations, it includes eliminations and reporting on minority interests.
There is a little bit of effort required to set up Castaway. Firstly, you need to create your chart of accounts first. Then link that to your Xero accounts. This does give you some flexibility in mapping multiple Xero accounts to one Castaway account but you do get just the one layout.
Castaway works best if you have some complex cashflow scenarios to model and want lots of flexibility in how to do that.
Fathom are experts in the Xero reporting space but relatively new to Xero cash flow forecasting. They’ve taken a different approach to other apps by using ‘micro-forecasts’ to build scenarios. This is in contrast to extrapolating the scenario directly from budgets. These ‘micro-forecasts’ could be for Sales or build up something like Wages & Salaries. By being able to add and remove them, you can try different options easily. The downside is that it can be challenging to keep track of them all.
The forecast does use a financial accounting layout with everything divided between operating, investing and financing activities. That’s popular with traditional accountants but not so much with business users.
The team at Fathom have never believed in giving you too much choice in reports. That’s great when what they offer matches your needs as it means you’re up and running quickly. It can be frustrating, however, if it’s not quite what you want!
Spotlight Reporting Forecasting
Another old hand in the Xero cash flow world, Spotlight Reporting added the Forecasting app to their suite a few years ago. It is based off the Profit & Loss budget which is then adjusted by a whole series of rules that manage the timing of everything. You’ll be able to produce a 3-way forecast but with a relatively fixed layout. The format is more akin to the traditional Statement of Cashflow (Indirect Method) as opposed to the more account-driven style favoured by Castaway and Calxa. If you like that layout, it could work well for you.
From its origins as the first cashflow forecasting app in the MYOB world in 2001, the team at Calxa have been working with Xero since 2011. Calxa, like Castaway, has put considerable effort into ensuring the accounting integrity of their 3-way forecast. It’s built from budgets that include P&L and Balance Sheet accounts. The trickier ones like bank, payables, receivables, GST/VAT are all calculated for you based on various settings. Scenarios are handled through multiple copies of the budgets.
Calxa is renowned as the most flexible of all the reporting apps and this is true on the cash flow side too. It will give you charts or reports for up to 10 years. Add to this functionality like ‘account trees’ which give you the ability to summarise, group and re-arrange the accounts as you need.
Calxa will give you cashflow forecasts for one company or hundreds, in one currency or multiple.
How do you Choose the Right Xero Cash Flow Alternative?
We’ve given you the overview but let us dig deeper. As we mentioned earlier, the three business situations for using a cash flow forecast require different needs. So, let us break down the Xero cash flow alternatives by functionality.
Daily or Monthly Cashflow Forecasts
If you want daily forecasts, and the Xero Cash Flow function is not enough for you, your only serious option is Float. The others mentioned here all focus on monthly forecasts ranging from 3 years (Fathom) to 15 years (Castaway).
A Full 3-Way Forecast
Count Float out on this one as it is not something they aim to provide. The 2 apps with the best reputation for always getting the accounting right on a 3-way statement model are Calxa and Castaway. Both Spotlight Reporting and Fathom use the indirect method of display which can be challenging for business clients.
Consolidated Cash Flow Forecasts
All of these apps, with the exception of Float, give some options on consolidating forecasts for multiple entities. Calxa, Castaway, Fathom and Spotlight Reporting all have options for eliminating either entire accounts from the consolidation or partial eliminations. Where the 4 start to diverge is in their multi-currency management:
- Castaway have a simple fixed exchange rate that is applied to all amounts in an entity.
- Fathom have a list of 97 supported currencies which is enough for most people, but not all of them. You have the ability to edit the imported exchange rates by reporting group.
- Spotlight Reporting have a more comprehensive range of currencies than Fathom and allow you to set both the Balance Sheet and P&L rates each month. They’ll automatically calculate exchange rate differences.
- Calxa has the most complete list of currencies and gives the option to over-ride for P&L and Balance Sheet amounts each month. In addition, you can create exchange rate scenarios to forecast the effect of future changes to rates. The reporting currency can be any currency, even one not related to any of the included entities.
Calculators in Xero Cash Flow Alternatives
Again, except for Float, all Xero cash flow alternatives, will provide you with a method of calculating common taxes like GST/VAT and payroll withholding taxes. With Float, this needs to be added as part of your monthly budgets. On the other hand, with Spotlight Reporting, Fathom and Castaway, you need to nominate the tax rate on each account. In contrast, Calxa takes this from the accounting system. It has pre-set schedules for the common payment periods in UK, Australia and New Zealand but you can create something similar for other country requirements.
Castaway has the most options when it comes to forecasting for loans. It includes interest free periods and irregular repayment options. On the other hand, in Fathom, Spotlight Reporting and Calxa there are simpler calculators which will work for the most common loan arrangements.
Factors to Consider in Xero Cash Flow Alternatives
Cashflow forecasting is usually only one part of your reporting requirements, even when it is the most important component. It is also worth considering what else your reporting app needs to do, or could do, for you. For example, consider these couple of options:
- Is it sufficient to budget just at the company level? Do you need to budget by tracking category and build the company budget from there? Calxa will give you the most flexibility in this area.
- Do you want a limited selection of reports to make it easy to choose the ones you want? Then Castaway, Fathom or Spotlight Reporting may do what you need. If you want choice, including customisation options, then have a look at Calxa.
We recently had a look at the 5 best Xero reporting tools and that guide will complement this one.
Comparison Matrix of Xero Cash Flow Alternatives
This matrix gives you a snapshot of the key functionalities and capabilities of Xero cash flow Add-Ons.
|Xero Cash Flow Alternatives||Calxa||Castaway||Fathom||Float||Spotlight Reporting|
|Forecast for Scenarios||No||Yes||Yes||Yes||No|
Note from the Calxa Team
It is not uncommon for our new and existing Calxa customers to ask us how we compare to other apps. This prompted us to have a closer look at a number of Xero Cash Flow Alternatives.
The review was split across various members of the Calxa Team. We then collected this data and summarised it to create a series of comparison style content. These articles are designed to be helpful when you are evaluating functionality of a Xero Cash Flow App.
We want to acknowledge that the world around us moves fast and changes are inevitable. Of course, technology developers make improvements to their apps all the time. This means, that some of our recount may be outdated by the time you read this.
So, please, keep this in mind when you digest this article. It simply reflects our point of view at the time of evaluating these Xero Cash Flow Alternatives.