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Cash Is King

Cash flow forecasting – you have to do it

All our businesses are different but there is one thing in common – cash is king.

There are many questions that you need to be able to answer:

  • How long will my cash resources last?
  • What’s the minimum level of income I need to survive?
  • What expenditure can I delay?
  • How do the government announcements impact my cash flow?
  • What happens after we turn the corner?
  • What are the implications of ‘what if’ scenarios?

You have to plan effectively and make informed decisions. This is not a time to guess.

Do I Need A Cash Flow Forecast?

YES – for all businesses, small, medium or large. Limited companies, sole traders, partnerships, charities – all.

It’s that simple.

Ultimately a cash flow forecast will help tell you how your business is performing, whether there is a risk of running out of cash and what financial impact would happen if you made certain decisions.

Normally we would recommend that all businesses run a 12 month forecast – ideally on a monthly basis – as a minimum.

At this current time, we would recommend that you and your accountant get together and put together not just a 12 month forecast based on monthly movements but also a three month weekly forecast which you keep up to date.

By doing this more detailed approach you will be able to identify the impact of recent announcements and conditions such as:

  • Small business grants;
  • VAT payment deferment;
  • HMRC time to pay arrangements;
  • The payment of SSP to staff or how the job retention scheme could affect you;
  • Whether loan funding would be beneficial both in the short and medium term;
  • Reviewing your fixed costs, including staff, and establishing what temporary decisions may be required; and
  • Being able to make informed decisions on a timely basis to ensure that your business thrives and survives.

Where Do I Start? How Do I Prepare A Cash Flow Forecast?

There are many different systems for preparing a cash flow forecast – some automated, some non-automated. You may need assistance with the preparation of your forecast so please contact your business mentor, an accountant or advisor for assistance.

At the moment, time is of the essence. For that reason, we would generally recommend preparing a cash flow forecast within a spreadsheet environment.

A cash flow forecast will show your projected income (receipt) streams, your projected expense (payments) streams and whether your overall balance held in the bank is increasing or decreasing. When complete it will then enable you to review the likely impact of your business decisions. For example, if I defer my VAT payment for the next quarter, how does this affect the business now but also how do I ensure that it is repaid within the financial year.

Example Of Projected Income Streams

  • Receipts from customers (consider the impact that your customers may delay payments);
  • Loan funding;
  • Government incentives including grants, statutory sick pay payments or wages contributions; and
  • Other planned injections into the business, ie. from yourselves or investment.

Examples Of Projected Expense Payments

  • Payments to suppliers (consider when your payments are technically due);
  • Wages and salary payments – Net Wages, PAYE and National Insurance, Pension Payments;
  • Hire purchase and loan repayments;
  • Capital expenditure;
  • Payments for VAT, corporation tax or income tax;
  • HMRC time to pay arrangements or deferment of VAT and other taxes; and
  • Other expenses.

Updating Of Your Forecast

It is vital to regularly keep your forecast up to date. For example, if your customer said that there were going to pay their invoices this week but don’t, revise your projections and see what impact this makes.

My advice would be to keep a three monthly weekly forecast updated on a weekly basis and your monthly forecast updated on a monthly basis. Therefore you should always be able to project your position for at least twelve months.

FREE Cash Flow Forecast Template

We do believe that this is an area which you should initially seek professional expertise and guidance. Times are tough and action needs to be now.

For that reason, we have designed a spreadsheet template for you to use which will cover both the first three months on a weekly basis and then the following nine months on a monthly basis to give you a 12 month projection.

This will be provided to you free of charge and is really easy to use.

To receive your FREE cash flow template, please complete the following brief form with your details and we will email it to you on a timely basis. Click here.

Naturally if you need any further assistance or would like a free review of your current position then please also email us at support@accountingandbeyond.co.uk.

May we also take this opportunity to wish you and your family all the best during the current crisis.

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