The vital forecast that can save your business going under.

29 Nov

Cashflow Forecast


You will have heard that cashflow or rather the poor management of cashflow is the number one reason why businesses go out of business.

A cashflow forecast in simple terms is a forecast of your current account balance.

Typically it is updated each month for the next 3 month period, so if you are likely to run out of cash you can anticipate it, and take appropriate action.

Which would be….

Reposition other funds so they are available or to speak to your bank explaining that you will need an overdraft for £x in 2 months time for however many months. Ask your bank manager how he feels when clients phone up with 2 days notice asking for an overdraft facility. Be clear about what this will cost you as overdrafts apart from being flexible are an expensive facility.

The biggest strain on cashflow is when a business is growing healthily. You will have heard of the term “working capital”, this is the money that sits in the business and stays there.

What this means is…

The value of stock you hold is part of this as is the amount of money that is owed to you for products/services delivered.  As your business grows these two values are likely to grow and need careful management.

So how difficult is it?

Producing your cashflow forecast is relatively easy, you will know when you make regular payments, the biggest variable will often be when you receive payments and when they clear into your account. This is why it should be you, the business owner, inputting into this forecast. The difference between when you have to pay for something and when you get paid for the same item (whether it’s identical or part of a service you provide), is called the “cash gap”, your job as the owner is to make this gap as small as possible.

Who should be helping?…

Your accountant/bookkeeper will be the best person to provide you with a draft each month for you to then put your best estimates of when money is expected to arrive into the account.

This naturally leads onto what can you do to improve your Cashflow?

Reduce credit facilities, make sure you have a rigorous payment chasing process. Encourage cash or credit card payments, get deposits paid earlier and provide finance options. Negotiate better credit terms with your suppliers, pay on credit card if it gives you an extra 30 days of interest free credit.

Invoice discounting and factoring may be viable options for you (receiving cash for invoices outstanding within your credit terms from your customers).

This is a strategy that needs very careful thought, discuss in detail with your accountant, and do consider any impact on your relationship with your customers.

Actions TO DO.

1.     Get your accountant/bookkeeper to produce a draft cashflow forecast.

2.     Start populating the template with your best estimates.

3.     Identify the items and the scale of the negative impact on your cashflow.

4.     Introduce strategies that will have the biggest positive impact on your cashflow and work down your list.

Steve Shaw helps owners of SME’s in Berkshire, Surrey and Hampshire to develop themselves and grow their businesses. Your commitment deserves results that make a difference. To find out more, click here.


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