The Predict Engine - why is it next-gen anyway? What’s all the fuss about?

Next-gen of small business forecasting - the future of financial management of small businesses

Traditional cash flow forecasting does not necessarily fit the next-gen of financial management in small businesses. Small business forecasting needs to be adapted to the new-gen of entrepreneurs and (small) business owners.

We’ve talked about how Predict is next-gen-zen for you running your business, and how it is not comparable to traditional forecasting.  

The crux is next-gen means: No. Effort. On. Your. Part. Every day it does a tonne of stuff that you'd need to hire a team of people to do (like look at past and present data). But for the nerds like me out there, you might want to know what the next-gen bit actually means.

As a business, we have taken the decision that it is one of our core values to be transparent about how predictions have been generated. There are many forecasting tools on the market that claim to use AI/ML and all the buzzwords of now but where do the numbers actually come from? Are they accurate? Can they be trusted to make decisions?

With Predict you will know where a number has come from and the reasons behind it so you can trust it before making a choice for your own business - trustworthy financial forecasting to inform your business planning and protect you as the successful business that you are.

So without giving our trade secrets away, as my CTO would kill me, I want to take you through how the moving parts of your business are split out, calculated, and zipped back up again to help you navigate your unique path.

Let’s talk about the accounting engine.

Cash flow is just one area that is predicted, but your business is also about sales, and business-related expenses, business credit, how much money goes into what, business assets, and tax obligations, and profit, and customers and how they behave with you and suppliers and how you behave with them and marketing, and ROI, and weird accounting things like journals, and loans, and funding, and finance, and products and services, and churn - you get my drift. You need to see the big picture predicted and then at different times for different reasons you’ll want to drill into the detail of any or all of these things. That’s the difference between prediction software and a cash flow forecast. Our 3-way forecasts consider a wide range of determinants, including your profit and loss statement, Best of all - all with no effort on your part. Great for your business strategy and financial planning.

That’s why Predict’s backbone is an accounting engine that works just like your accounting software. It creates a profit and loss, balance sheet, and cash flow statement automatically from your historical and predicted data. A holistic picture of your business finances. Every time a predicted transaction is created, it’s like a pinball that hits lots of other areas, creating automatic impact calculations across things like accounts payable, VAT, net profit, gross profit, current year earnings, and so on. This is so important because it is what gives you the full picture of your business. It also has the added brilliant bonus of ensuring you are (small) business loan application ready if you ever need to apply for funding. No. Effort. On. Your. Part.

Let's talk about VAT.

The prediction engine we’ll talk about later in more detail, but one of the most important things it does is to calculate your VAT (GST) accurately - you might think this is a small thing but it’s huge. Incredibly, every other cash flow forecasting tool in the market doesn’t do this. They either rely on you to enter this information, forecast VAT based upon previous VAT amounts, which is frankly dangerous or don’t take into consideration any current VAT liability. This is why our prediction software is not the same as traditional forecasting software. Predict uses real accounting rules to calculate VAT from transactions in the past and the future, highlighting both your actual and projected liability clearly in the predicted cash chart and in the balance sheet in your financial section.  Those payments are some of the biggest you can make and can cripple you if they are unexpected. I know it happened to me when I had my pub all of those years ago. Relying on cobbled together spreadsheets, working at a 6-week time lag, juggling a 1-year-old and new business, I just didn’t forecast the VAT properly, how could I? I didn’t have a team of people working it out for me. £40k needed within a few weeks, which nearly closed the business before it even started. I was really fortunate, and my family bailed me out but this is not a position I want any business owner to ever be in. With Predict, you’ll never be caught out like I was. Staying true to this background, we have even highlighted VAT impacts in yellow, created a separate tile in the balance sheet, and made sure that predicted cash is highlighting these big movements. No. Effort. On. Your. Part.

Let’s talk about the prediction engine.

Are we using machine learning? No. No, we’re not. Having researched thousands of small business data sets, we know that your uniqueness can also make your data irregular and machine learning doesn’t like that when predicting time series data. It needs lots and lots of data to be fed into it for the machines to be able to learn. Could we use AI to learn by using all of our data sets and adjust the algorithms automatically? No. Think about sales, everybody's different, what would the machines learn? You must be able to trust any number and so click any cell in Predict and a pop-up will explain exactly where it has come from and why ensuring total transparency at all times. We call this, This Number Explained. In order to do that and everything else you need to accurately predict your entire business, Predict combines good old-fashioned maths with the hefty power of computing science and our own sophisticated algorithms. These are financial forecasts you can base your business decisions on.

The prediction engine needs data from your accounting software, much like a (small) business accountant. Every day we pull at minimum, 2 years worth of daily:

• Reports - which is your P&L, Balance sheet and trial balance, journals as there is so much data hidden in these, and your transactions. It’s a lot of data. A lot.

The transactions are then split out into 3 separate types:

• There are Invoices/bills, manual journals, and spend/receive money transactions. VAT/GST is also separated at this point to ensure it’s predicted accurately. You don’t need to know anything other than they all behave very differently, so they need to have different algorithms run over the top of them to ensure the most accurate predictions.

At the same time, we look at the account that the transactions sit within as every account is different. A sales account behaves differently to a rent, legal or wages account. The transactional algorithms change depending on this too.

These transactional predictions are created by our algorithms and then the 3 separate transaction types are zipped back up together for every account, into daily values net of VAT. Finally, these are then aggregated into monthly values. A lot goes into that monthly number that you see! The further out the date of the prediction is, the less accurate it may be of course, but based upon all of the historical and current factors, this is what your business will look like based upon thousands of predicted values.

These predicted transactions have two impacts on your business - the cash impact and then the accounting impact. The accounting engine as you know, is what is creating the profit and loss, balance sheet and cash flow statement automatically from your historical and predicted data. The activity tab is effectively the Profit and Loss view of your business. But in calculating the cash impact, how do we know when something as simple as a sale is going to be paid? Are we relying on due dates? No. At the same time as the activity is being predicted, algorithms are calculating the average days to pay for every single customer and every supplier that you have. They are then applied to every invoice or bill found in that account. There may be invoices from 30 different customers who all pay you at different intervals - understanding this, means your cash in the bank prediction will be realistic and based on actual past behavior. Predict then layers that information with the impact of manual journals and spend/receive money and boom, we have a live moving predicted cash impact figure for every account.

All of this is what your Futrli Predicts row is showing in both the activity view and the cash impact view. So many calculations and moving parts to come up with that number. And guess what? Tomorrow we do it all again, and the day after that. No. Effort. On. Your. Part.

So can you make any changes to the predictions in Predict?

Yes of course. Prediction software enables you to play with your data - test out your own choices and see the impact. Going on gut instinct alone, is no longer reliable enough when knowing if you’ve got enough cash in the bank for the future, or making that final decision on whether to take on new staff, change sale prices, increase costs, launch a new product line etc. We’ve got different ways for you to forecast and payment methods to enable you to do just that, so go nuts and get involved.

All of your forecasts start with the Futrli predicted forecast (the one created using all our clever algorithms) but these can be toggled off and then you can add your own. Turn them on and off to compare predictions and help make the right decision for your business.

All predicted payment dates can be updated or excluded as you discover something that we don’t know. Maintaining this gives you the ultimate control and confidence in your cash flow accuracy.  

I know that Predict will make you exhale and smile a little, like when you think about floating on a flamingo li-lo on your summer holidays. Calm, in Control,and Confident - you now know where your business is heading, and you know what needs to be done.. That’s when Predict + you are incredible and how it should be used for every potential choice you make.