What is cash flow forecasting? – In a nutshell

Published on 4th October 2013

Cash Flow Forecasting – expert advice from Adrian Hemmings at Simpkins Edwards LLP

Click here to view the transcript
Cash is the life blood of any business. A cashflow forecast is a vital tool for business owners who need to understand how the cash available to their business will rise and fall in relation to the decisions they make and the sales they achieve.
It can also help identify those points where cash will be at its tightest so action can be taken where appropriate.

The best place to start when preparing a cashflow forecast is with your sales targets. You need to form a realistic expectation of both turnover and the associated payment terms granted to customers, to estimate the cash that will flow into your business.
The next step is to work out what resources you need in order to be able to deliver those sales and when you have to pay for them.

Split your payments to suppliers to show those that need to be paid immediately, those due at the end of the month, including staff, and those that do not need to be paid for a longer period of time.

Don’t forget to include V.A.T. if applicable, which can be one of the single biggest cash outflows in a business.

With the cashflow prepared see what it tells you about your worst cash position and whether this can be accommodated within your current cash resources and any overdraft or other facilities that are available to you.

If it can’t then this needs to be addressed as a matter of urgency either by increasing your cash facilities, injecting cash into the business from other sources or by changing the planned trading to remain within your means.

Not all of these options will be available to every business but at least knowing there is a potential problem allows you to start looking for solutions.

Now make this a regular habit. The cash in your business needs to be regularly monitored, in some cases on a daily basis and your cashflow projections will need to be regularly reviewed and amended, particularly at times when cash is tight and needing the most careful management.

Setting aside time each month to review your cashflow and also to compare actual results to your original expectations has the potential to bring additional benefits such as highlighting areas where the business is not performing as you originally expected.
This is a brief snapshot into the world of cashflow forecasts, but if the basics covered in this short video are solid, then you have a good foundation from which to progress.

Adrian Hemmings
Simpkins Edwards LLP
01392 211233


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