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Guide to cash-flow forecasting

Many businesses now find themselves urgently needing to predict how the impact of Coronavirus is going to affect their cash-flow and assess whether they will be able to weather the storm.

Other companies are already considering applying for finance from their existing bank or using one of the Government-backed assistance schemes, such as the Coronavirus Business Interruption Loan Scheme.

For both kinds of business need, a cash-flow forecast will be essential.

What is a cash-flow forecast?

A cash-flow forecast or projection is an estimation of the cash coming into and going out of your business. Often prepared for a period of twelve-months or longer, a forecast can cover any required time-frame.

While you may have a profitable business, this does not always translate to a positive bank balance. Cash will come into your business when customers buy your products or services, but this does not always happen immediately. Cash is paid out of your business when you make payments to suppliers, for rent and other running expenses, when you buy fixed assets and for taxes or financing / loan repayments.

The cash-flow forecast is designed to look at the timing of when these inflows and outflows occur with the aim of maintaining a positive cash-flow balance. It also helps to identify pressure points and shortfalls which enable you to apply for finance or manage your cash-flows accordingly.

There are numerous software packages available to assist with the process and you may find that your existing accounting software can prepare a cash-flow forecast for you. The level of detail required will ultimately depend on the nature of the business and the requirements of the end-user.

Now might be the time to reach out to your professional advisers for assistance in preparing a cashflow forecast.

What information do I need to prepare a cash-flow forecast under normal circumstances?

  • Accurate accounting records: You will need your business’ accounting records to be up-to-date so you have an accurate opening position. This may, for example, mean using the company’s latest management accounts prepared or another appropriate reference date.
  • Predicted income from sales and other sources of cash: You will need details of all the money you have coming in each month. This may include cash sales, amounts received from sales made previously, any receipts related to loans you have made money, tax refunds or grants you are due to receive, etc. This should reflect any payment plans you have in place with customers.
  • Forecast uses of cash: This should include every expense your business will incur, including payroll, payments to all suppliers, all utilities, rent, loan and other financing payments, company and employer taxes including VAT, etc.
  • Previous year’s results: If you are not sure where to begin, it may be useful to use your previous year’s results as a starting point and adjust these based on what you now know about the likely future results.

What about the impact of the Coronavirus?

We know that for the Coronavirus Business Interruption Loan Scheme, finance providers are looking for you to show that your borrowing proposal would be considered viable, were it not for the current pandemic.

Your cash-flow forecast may therefore be required to show the estimated position without needing to build in the impact of the Coronavirus. If you are preparing the forecast for the purposes of applying under the Business Interruption Loan Scheme, you should ask the bank or other finance provider what basis they expect the forecast to be prepared before starting.

If you are forecasting and do want to include additional adjustments to reflect the impact of the Coronavirus, then you should consider how your business will be affected by the following:

  • Impact on sales made: Depending on the nature of your business, this could be positive or negative. Tied into this will be the impact on timing of receipts from sales; will your customers be able to pay you on the same terms as before or will they be experiencing cash-flow difficulties themselves?
  • Impact on payment of expenses: Again, this could be positive or negative. And again, consider if you will be paying your suppliers on the same terms as before, or can you make arrangements now to extend credit terms, for example. Furthermore, can you make savings or cancel any costs which you no longer need to incur?
  • Eligibility for Government measures: Is your business eligible for any of the Government assistance announced in recent weeks? These measures include the Job Retention Scheme, Coronavirus Business Interruption Loan Scheme, deferred VAT payments, Time to Pay HMRC, and Cash grants for retail, hospitality and leisure sectors.

You may also find our separate article called Coronavirus and cash-flow: six top tips, of interest.

Where can I get help?

For those businesses without in-house expertise, now might be the time to reach out to your professional advisers for assistance in preparing a cash-flow forecast.

Your accountant is likely to be very well-placed to provide the ongoing support you need while making applications for finance as well as providing expert advice over other cash-flow decisions you need to make over the coming weeks and months.

Would you like to know more?

If you would like to discuss any of the above guidance or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or one of the partners to the right.

You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest insights and sign up here to receive important Practical Guidance updates delivered directly to your inbox.

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