The Analysis Comment
Cashing in
A new year is a time for tips on how to improve cashflow forecasting
Stuart Harland Business development executive, Nucleus Commercial Finance
Whether you are a new business or a company that has years of profitability behind it, cashflow forecasting is integral to the success of your business. And while this operational task plays such an important part for all SMEs, we see all too often that improper or lack of cashflow forecasting leads to the collapse of businesses across the country. Simply put, cashflow forecasting is the
predictive measurement of cash inflows and outflows of a business. Setting aside time regularly to do this provides you with insight on the performance of your business and ultimately allows you to make strategic decisions, such as when to apply for additional finance if needed. Remember, however,
to your operations or even supply sourcing to get your books out of the red as soon as possible. Far too often we see overdue audits resulting in companies folding. So, whether your forecasts consistently tell
you your office space or your suppliers are too expensive for your current operations, it is best to address these as soon as possible. Additionally, it is recommended that you
that cashflow
forecasting is not only about spotting gaps in your firm’s finances – it can also indicate when you might have a cash surplus which can be used to help grow your business through further investment or to save in reserves. While cashflow forecasting is the simple
measure of subtracting expenses from revenue, there is value in performing them regularly.
Plan ahead to stay ahead Regular forecasting is important to not only keep on top of your firm’s finances, but also plan for upcoming events. This is particularly essential for seasonal events or trends that occur throughout the year dependent on your business. Considering the recent holiday season, forecasting an increase in customer traffic may result in the need to plan for extra stock or staff. Should you need additional finance for this to happen, it is much better to have this sorted in advance rather than getting stuck in a rut when the time comes. Remember that seeking and applying for finance, whether it be
through traditional venues or through alternative finance, takes time. It is in your best interest to perform, at the least, quarterly cashflow forecasts to ensure you give yourself time to sort the appropriate help where needed.
Beat the problems before they beat you Should you find gaps in your forecasting, where your net cashflow sits negatively, it is vital that you evaluate and make changes either
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Should you need additional finance for this to happen, it is much better to have this sorted in advance rather than getting stuck in a rut when the time comes
keep on top of your inventory, should you have any at your business, to make sure that you are not allocating too much to new stock just for it to go to waste. Inventory checks should be performed as often as cashflow forecasts, if not more to make sure that you are not throwing money away when it can be totally avoided. As mentioned before, forecasting does
not just prepare you for the cash gaps in your business. It can also inform you about periods where you might have extra cash after all is said and done. This extra cash can be used to invest in upgrades or growth for your business; but keep in mind that it is wise to keep contingency cash at hand to fill
any gaps you might come across, should you ever fall into the red during a cashflow forecast review.
Always wonder, ‘what if’ By conducting ‘what if’ scenarios during your forecasting, you can gear up and prepare yourself for the worst. By hypothetically adding new staff, decreasing sales, or modifying operations in these ‘what if’ scenarios, you can determine whether your business would be able to withstand the hit to its finances. If not, this could be an indication you may need to apply for external finance to prepare your firm. Securing finance before you really need it is never a bad thing. In
fact, doing so could give you time to shop around to find the best rates for your business. Additional finance should not only be used for crisis, but can be put towards pushing your business towards more growth. Cashflow forecasting should not be a difficult task that you actively
avoid at all costs. Instead, consider it part of your regular business operations and something that should be completed quickly and often. CCR
www.CCRMagazine.com January 2020
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