What is ViTWO's 2M Cashflow Analysis For MSMEs?

Working capital might be the biggest pain that the Indian MSMEs ache to solve.

On the other hand, traditional banks are often hesitant to extend credit to MSMEs due to perceived risks.

Meanwhile, India has ushered in GST-based lending through initiatives like the Open Digital Commerce (ONDC), Open Credit Enablement Network (OCEN), and Trade Receivables Discounting System (TReDS).

This is where cash-flow-based lending comes into play, offering a lifeline to these enterprises by focusing on their cash flow rather than collateral.

The idea is to leverage the financial strength of the supply chain to provide funding to the stakeholders in the supply chain who need it the most. Supply chain financing shifts focus from ratios to cash flows. This means making credit decisions for MSME businesses through a thorough underwriting process and creating customised structures to spread risk among different parties.

However, in the long run of dreams, we must realise that long-term loans often fall short of addressing the immediate financial needs of MSMEs.

Your solution is ViTWO Virtual CFOs' cash flow-backed financing strategies act as a credit gap cure dynamic by significantly improving the cash flow with the 2M analysis.

“What's so special about ViTWO's 2M cashflow strategy?

ViTWO is the only VCFO that brings 2M (Macro + Micro) cash flow analysis to MSMEs and start-ups in the grand scheme of transforming insights into actionable savings, predicting surpluses and shortages, and enabling effective business planning.”

Macro Cash Flow Analysis: The Big Picture

At the macro level, ViTWO ’s analysis provides a broad overview of major cash inflows and outflows. This approach helps businesses identify trends, prepare for financial fluctuations, and maintain adequate cash reserves.

Sure, there will be fluctuations month-to-month, but macro-analysis smooths them out, revealing the underlying trends. It is crucial because you're not aiming for pinpoint accuracy; you want a clear understanding of your prevalent financial landscape.

Key questions addressed include:

• What's the typical amount of money coming into the business from sales (average production revenue)?

• What are the ongoing expenses we incur to keep the business running (cost of goods sold and overhead)?

The power of macro cash flow analysis lies in its ability to shape your business strategy. By identifying trends in cash flow, you gain valuable insights that translate into proactive decision-making:

• Spotting Potential Shortfalls: Macro analysis helps you anticipate potential cash crunches. By averaging your large outflows at the end of each month, quarter, and year, you can identify periods where expenses might exceed incoming funds. This foresight allows you to take timely action, such as securing a line of credit or a loan, to ensure vital operations aren't disrupted.

• Building a Safety Net: Macro analysis empowers you to create a financial buffer. A general rule of thumb suggests maintaining a reserve equivalent to 3-4 months' worth of your average cost of goods sold and expenses. This readily available cash cushion acts as a safety net, mitigating the impact of unexpected financial bumps.

Detailed Insights with Micro Cash Flow Analysis

Unlike traditional financial analysis, which focuses on broad strokes, micro cash flow analysis deepens into the granular details. It's like examining a complex engine under a magnifying glass – seeing every moving part and its precise function.  

This analysis focuses on a shorter timeframe, typically 8 to 12 weeks, providing a hyper-focused view of your imminent cash inflows and outflows.

ViTWO puts your business under a microscope, it meticulously analyses each customer interaction, pinpointing anticipated inflows (payments received) and outflows (payments due) along with their exact timing. The same level of scrutiny is applied to your vendors, with every cost associated meticulously factored in.

This meticulous approach allows you to answer critical questions:

• What upcoming bills need to be paid, and when?

• When can I expect customer payments to arrive?

• How will loan repayments impact my cash flow?

The micro-analysis infuses your cash flow with a forward-looking nature. By dissecting individual transactions, you might discover discrepancies in your initial macro-level estimates.

Moreover, timing mismatches often hidden in monthly or quarterly reports become readily apparent. For example, if you only look at cash flow monthly or quarterly, you might miss critical cash flow issues that come up mid-month. ViTWO's micro cash flow analysis helps you avoid such blind spots readily.

2M Cashflow Analysis: Reconciling the Macro with the Micro

The uniqueness of ViTWO 's approach lies in the synergy between macro and microanalysis.  

Insights gleaned from the micro level can refine assumptions made during the macro analysis, leading to a more accurate overall picture. The micro level helps identify potential issues that might be missed in a purely macro view.

Thus, the most significant benefit of cash flow analysis is the control it gives business owners.

By gaining visibility into daily, weekly, and monthly cash flow movements, businesses can:

• Plan major purchases effectively.
• Secure financial management proactively.
• Strategies for growth and unforeseen events.
• Make data-driven decisions to ensure long-term success.

In essence, ViTWO's 2M cash flow analysis helps Indian MSMEs get a comprehensive view of their cash flow on a monthly, quarterly, and annual basis. It provides visibility into inflows and outflows, identifies potential issues, and offers detailed insights to help businesses grow and better understand their operations.