Any business owner would be able to tell you how much his or her company turned over in the past year. The same person might be able to say how much they hope to turn over in the immediate future. But how many can handle something like a proper cash flow forecast for further away than that?

The answer is quite a few, but they aren't necessarily doing it in the most efficient way. One software seller, Dr Geoff Bristow of Cashflow Wizard, has done some research on the subject: "Of the 1.2m small businesses in the UK with more than one employee, 95% [1.15m] do some sort of forecasting," he says. "Of these, 14% use forecasting software other than Excel, and the rest (approx 1m) do use Excel. Of the 2.5m companies with one employee, a smaller proportion will do forecasting, but I would say 60% use Excel and very few of them will use any other programme."

This, many people will claim, is a bad thing. Not because Excel is a bad product - far from it: it's the market leading spreadsheet and a lot of people have a lot of reasons to be pleased with it. Jan Hilenaar, project manager of REL Consulting Group, says: "When off-the-shelf software such as Excel is used, companies often find that they do not have the right processes in place and have difficulty configuring the software to their specific market environment."

The answer is to use something more tailored, he suggests. "Cash flow forecasting software needs to be used as part of an overall cash flow management process, including collections of payments from customers and making payments to suppliers. If this is not achieved there will be little benefit in implementing cash flow forecasting processes and systems."

So, as always, the answer isn't to get some software out of a box, load it up and hope for the best: not too surprisingly, this doesn't work. Gail Polkinghorne, financial director of Poole Audi, discovered the limitations of the ordinary Excel system very quickly: "I had a basic Excel spreadsheet that I had developed myself, but this didn't allow me to look at projected cash flow or the balance sheets," she explains. "What I needed was something that allowed me to create models for different situations and assess the impact of a variety of variables on each of these scenarios."

She opted for Cashflow Wizard, one of the pieces of software designed for the purpose, which cost £49 but paid for itself extremely quickly.

Polkinghorne found it was possible to model a professional-looking cash flow report without calling in an external agency. "The real impact came in a meeting with our bank manager. As we were sitting there I was able to change aspects of the model to demonstrate the impact of different questions that he had. In this way we were able to show him, in great detail, the thinking behind our decisions and the rationale behind our funding requirements." The result was agreement on the overdraft, very quickly.

It's still possible to conclude that it's OK buying more software, but that Excel, for all its "neutral" status as a piece of software, would have suited the job just as well. Polkinghorne suggests, however, that the time-saving aspect of the software makes having it more than worthwhile. She hasn't actually measured the time it would take to write something as complex as the product, but given its functions and its internal checking she wouldn't go back.

It's notable that Polkinghorne bought the product - and didn't spend much - because she needed it for a particular purpose. As always with IT purchases, it needs to be done after thinking and putting the product into a strategy rather than thinking "this might work". Without the right management controls around it, the product would be useless.

The last word can go to REL Group's Hillenaar. "Good cash flow management is always difficult to measure," he admits. "But you should never ever forget that you can lose money year after year, but you only run out of cash once." And in company terms that "once" tends to be pretty final.

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Why plain Excel won't cut it

Many business owners will use Excel for their financials, and there's a lot to be said for the product. Which is why so many of the cash flow offerings under discussion are based on that product. The reasons it isn't always good enough are as follows:

· It's not designed for the task: it's a "vanilla" spreadsheet that needs adapting for something as specific as cash flow projections.

· The person who tweaks it for you can move on, and the replacement won't necessarily understand what has been done to the spreadsheet to make it work.

· If they don't move on, this person may be the only one in your organisation to understand how the spreadsheet does the cash flow, and will thus have a lot of power, particularly when it comes to pay negotiations!