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How to do a cash flow forecast: Our top tips

As the United Kingdom enters possibly the deepest recession for a generation you, like most small business owners, are grappling with do’s and don’ts of how to manage your company’s cash flow through a downturn. Our Co-founder and CFO, Jon, shares top tips on how to do a cash flow forecast. 

‘You do not get great sailors in calm waters’!  The financial storm of covid-19 rages on and the uncertainty your business is encountering will often feel insurmountable. The pressures on your time, energy, and emotion as a small business owner will test your resilience to its limits.

Today is the time to embrace the challenge and ensure you are on top of your company’s cash flow.

Cash flow planning has become a regular exercise for the majority of business owners. This enhanced scrutiny and use of cash flow forecasting software might be a new way of working for you. To help you out, here are a few tips to help you forecast your business’s cash flow and develop a process for the long term.

First, understand how much cash you have today

Your first ‘must do’ is to understand the one priority that will keep your business afloat. Cash today!!!

Have you got enough cash to cover your operating costs? Can you pay your team? Is your next tax bill covered? Are the payment terms of your key suppliers achievable? 

The goodwill of key stakeholders will be lost quickly if you can’t pay on time and that will add to your stresses downstream.

Start with data accuracy 

To keep your business on the right track going forward, you should continue to be on the pulse of your business’s cash flow every day. The correct financial processes and cloud accounting technology will give you this up to date insight. This is key if you’re to get a clear view of your business’s cash flow

To do this you need to make sure you’re capturing the right financial data in Xero.  

There are lots of tools available that capture all the information you need – from bank transactions to expenses and more. 

  • Automatic bank feeds: Bank feeds are one of the greatest innovations in accounting. By setting up feeds from your bank accounts, your transactions are imported automatically into Xero each business day. This makes it easy to keep track of the money coming in and going out. You can set up multiple feeds from different banks (Xero works with most of the major business banking providers in the UK). 
  • Receipt Bank: This nifty tool allows you to easily upload bills, receipts and documents using a desktop, mobile, email or scanning device. The key data is then automatically extracted and synced into Xero. Once bills and receipts are uploaded, the data is matched with your business’s bank feeds and ready for one-click bank reconciliation.
  • Receipt Bank Expenses: enables you to claim and track expenses all in one place. Employees can snap receipts and upload them to Xero in real-time. This will help you monitor spending as it happens so you can make fast and informed decisions.

Building a cash flow forecast 

Once you’re capturing all the right data in Xero, you’re in a great position to track your cash flow and build a robust buffer against unforeseen bumps. 

To forecast you must have sight of, and challenge, the value of every cost. 

There are a couple of simple tools to help you do this. One is in Xero and the other is using an app called Float. Both aim to give you the visibility and insights into cash today and tomorrow: 

  • Business snapshot in Xero: This new feature is a visual dashboard of key financial metrics showing your business performance at a glance. You can view a range of metrics including income, expenses, average time to get paid, and average time to pay suppliers (debtor and creditor days). You can also see your balance sheet and cash balance. Over time, you’ll be able to identify trends and evaluate where your business is at – including the option to see the impact of COVID-19 on your revenue compared to the same period last year.
  • Float: This tool takes all the relevant data from your Xero account – like your bank accounts, bills, invoices – to give you an up-to-date view of your business’s cash flow in one place. Using this data, it projects your bank balance into the future, showing you the impact of existing bills and invoices if they’re paid on time. 

Once revenue targets and costs have been challenged you will understand the cash gap and can begin to work creatively to bridge it.

Focus your forecasts around finding new ways to solve problems that your existing customers, team and suppliers are experiencing. This is the hallmark of a smart small business owner! 

You should also be aware of what is available to you in terms of government assistance, grants, business lending, and tax reliefs (like R&D). Knowledge like this could be your lifeline.

Make the most of cash flow apps 

Historically cash flow was something that businesses viewed a few times a year. But now there are dynamic tools that enable real-time and on-demand insights to help you create a sustainable business.  

Floatwe have mentioned and is a cash flow forecasting and management app that gives businesses a real-time view of cash flow. This enables you to plan for the what-ifs and make more confident decisions about the future.

Blu Prints –  helps your business to go a step further and understand key financial metrics, manage cash flow and make informed decisions for your business.  think of this as a board level view linked to your future strategic plans. 

Review and repeat 

As circumstances continue to change, we recommend you review your cash flow forecast regularly. For example, if a new lockdown procedure affects how a supplier will get stock to you, this will need to be reflected in your cash flow forecast and profit and loss reports.

To ensure that these steps become part of your routine, set aside a few hours every week to go over any relevant updates.

Need support with your business’s cash flow forecast?

We’re here to help. If you need a friendly chat with someone who’s experienced in cash flow forecasting, please just get in touch with us at info@blusky.co.uk.

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