Keep your cashflow forecast up to date – 5 tips and 1 warningPosted: Jun 10, 2020

Why then are we bothering to dedicate a full article and video to cashflow forecasts if they are so common? Well, having a forecast and having a good, working one, are sometimes different things. Our experience tells us that having a cashflow forecast may be common but having a good, appropriate cashflow forecast is much less so. This is usually not the fault of the business owner. It is not neglectful or because they didn’t understand the basics of doing one. Usually it is simply a mix of not fully seeing the importance and usefulness of a forecast and a lack of time to work on it. Bearing in mind the situation that many of our clients are in, what may feel like additional paperwork, is probably not at the top of the to-do list.

As Gavin explains in our accompanying video, a cashflow forecast is not just useful, it can be vital if you are facing insolvency. So, here are a few tips on keeping a great cashflow forecast that we have taken from good practice by our clients over the years.

• Don’t let the dust build up. Your cashflow forecast should be dynamic. It makes our hearts sink when we ask for one and it is dated months, even years, prior to the current date. An out of date cashflow forecast is pretty much useless.
• Increase the frequency of updates based on the increased possibility of insolvency. Again, see our video for more information on the Directors responsibility aspect of this, but also from your point of view the more you know the better you can deal with the ongoing situation.
• Try not to see it as a chore, try to see it as a useful tool. Your cashflow forecast should be your ally when it comes to knowing where your business is likely to stand in the near future. As we all know, actually taking action makes us more motivated to do so again. The more you see your cashflow forecast in a positive light, the easier you will find it to keep working on it. It may be a bit of a cliché, but a positive approach will really help.
• Please, please, please be honest with yourself. Positivity is great but an overly optimistic outlook is not helpful. Your cashflow forecast is there to be as accurate as possible so you need to be honest and realistic.
• Look back to look forward. We often see a subtle difference between the cashflow and history. Small difference between the reality of the situation and the forecast will magnify if you are in a tight spot financially. It’s important to look back to the real situation. We sometimes see businesses put 30 days for an invoice payment in the cashflow for example, but in fact the customer takes more than that historically. Supply chain variance for manufacturing or food and beverage industries is another area where we sometimes see a knock-on effect. When you are forecasting for shorter periods seasonal price variation or holiday periods can have a big effect on your income, outgoings and order fulfilment potential. Base your projections in history where possible.
• Set a fixed time in your schedule to do the cashflow forecast and force yourself to stick to it. Working on shorter periods means you will need a fixed start and end point, so you have a reliable cycle of data.

We cannot over stress the importance of cashflow forecasting in any business and particularly one where you are trying to resolve potential insolvency issues. Not only will it give you a true position of where you stand but it will also show you are acting responsibly and using reliable forecasting which based on solid data.

Do call us if you are facing difficulties with potential insolvency and we will talk through cashflow forecasting and any other issues. The first consultation is free for all our clients.