Top Tips for Cash Forecasting

One of the most important things for businesses right now is managing cash.  A cash forecast is vital for managing the day to day, but it is also going to be important to have a forecast if you are applying for funding through the CBILS.  Here are our top tips on preparing a cash forecast.

1. Break the forecasts down

When cash is tight, time is of the essence and it is essential to have an up to date 13 week rolling cash forecast (if not daily for the first few weeks of the forecast) to manage the short-term position.

2. Reconcile cash and unwind your opening balance sheet

Start your cash forecast with a reconciled opening bank/overdraft position.  Following that, existing debtors and creditors should be ‘unwound’ into the forecast based on expected payment dates.  In these exceptional times this will be a very difficult judgement and you may need to factor in some delayed debtor collections, typically a base case and a downside case may be needed. Delays and possible payment plans should also be factored in for creditors where achievable.

3. Integrate the cash forecast with the profit and loss and balance sheet

The focus should start with the short-term, but it is also worth ensuring you have a longer-term cash forecast linking directly to the profit and loss and balance sheet forecasts.   It doesn’t have to be a pretty spreadsheet, as long as the mechanics work.

4. Overlay non-trading items

Once the forecast trading receipts and payments are linked to the forecast profit and loss, make sure you consider non-trading items such as loan/lease payments, HMRC payments, dividends and interest payment/income.  These may be some of the easiest payments to defer and delay but we would always recommend doing so consensually.

5. Look at your history

When preparing any forecast beyond the immediate short term, the best place to look is typically at your historic trends (e.g. are sales seasonal, when do customers typically pay etc).   Current circumstances will make this very difficult but this should be the starting point with downside scenarios also considered.

6. Run scenarios

Use the cash forecast to run some scenarios such as lower sales, slow paying customers, tighter credit terms etc.  This will allow you to compare the level of headroom to the possible length of the current downturn.

7. Keep it up to date

To ensure you make the most of the forecast, monitor actual performance against forecast and reforecast on a daily basis.  Always keep an eye on cash in both the short and long term to plan for shortfalls in advance.  Use the forecast to make decisions on which creditors to pay and when.

8. Use external support if needed

We are already working with some of our clients to implement contingency plans, cash management and cost cutting measures to help manage through the crisis in a sustainable way.  There is also a lot of well documented Government support such as rates holidays, VAT deferrals, PAYE time to pay arrangements and the forthcoming coronavirus job retention scheme.

We have a team of experienced professionals willing to offer advice and support to businesses across our region and we would be happy to offer some free advice and guidance over the phone for anyone who has concerns about their business. Please do not hesitate to contact us.