By Paul Smith
Northamptonshire Growth Hub
CAN businesses survive without cash-flow forecasts? Possibly, but they would be taking significant risks. For instance, if a decision needs to be made about hiring a new person or buying new equipment in the future, you can't make an accurate or safe decision without knowing if and when you can afford it!
Cash-flow forecasting is part and parcel of business planning. At its base level, cash flow is a way of charting money that enters and leaves your business. Depending on the type of business you run, how frequently sales are made, and how often cash gets spent, the cash flow is a mechanism to keep track of those movements at a detailed level.
If you are not familiar with cash-flow forecasts the Growth Hub has some useful templates that can be provided. If you're comfortable with spreadsheets, you can make your forecast as complex as you like, but it doesn't need to be complicated. The great thing with spreadsheets is that you can use formulas to create 'what if?' scenarios; what happens if you change the cost of a particular overhead? What would the effect be on labour and parts costs if you sell more of item A?
It's best to do your forecast on a month-by-month basis, because you can identify when you need to have cash in the bank to cover expenses. A classic example is the accountant's bill, which will typically come in annually; your spreadsheet will predict when you need to have money in the bank to pay for it.
The basic principles of cash-flow forecasting don't really differ between industries, but the timelines might vary. For instance, if you're selling high-ticket items that are sold less frequently and your monthly outgoings are relatively consistent, the cash-flow forecast can work on a broader timeline, but most enterprises still forecast on a monthly basis.
When it comes to cash-flow forecasting, considering your costs is generally quite straightforward, but a lot of businesses struggle to predict where the income will come from. This is why we encourage people to focus on the costs, because that gives them a sense of what they need to sell in order to break even. Providing you're willing to be honest about how much you can realistically sell, you can then work out how much profit to expect.
A common mistake we see with cash-flow forecasts is not anticipating or being honest about every cost, and confusion with costs such as staff overheads; i.e. how salary is recorded versus costs like National Insurance contributions. That's why getting assistance is certainly recommended.
If you'd like help with your cash-flow forecast, our gateway advisers are waiting for your call. They'll assess your requirements and either assist by providing a useful spreadsheet template or forwarding your details onto an adviser like myself. Contact us today on 01604 212696 or email email@example.com