Over recent months cash flow forecasting tools have become some of the most in demand products required by business owners. With the market growing and the need increasing, we thought it would be useful to add some commentary to this and offer some reminders and solutions, to those still in need of a starting point and to those requiring a more robust solution to their complex forecasting needs.
Short term projections
If you’re a Xero user you may have already been notified of the new Short-term cash flow feature which is being rolled out to all customers on their Starter, Standard and Premium plans over the next two weeks. The tool will no doubt become an invaluable resource for many business owners, given the simplicity of it and the ease of access as it will sit within Xero itself.
The product will provide a 30 day forecast and will be accessed within the “Business” menu once available. Here’s a link to Xero’s recent article.
All business owners will already be doing this in some shape or form, some probably on Excel, some probably by hand and some maybe even in their heads. We’re contacting you as a Xero user though as this new function will give you the ability to do this at your fingertips, will save you time and probably be more accurate.
Medium term projections
Whilst a short-term cash projection is essential, in the simplest of terms to make sure you can “pay the bills at the end of the month”, a 30 day projection alone probably won’t provide most business owners with the confidence that current activities and plans are sustainable. Yes there might be enough cash to pay this months’ bills but will there be enough cash to cover the next quarterly VAT liability and so on. For those needing an insight to the slightly longer term, we see that a 3 month projection is the next essential forecasting timeframe.
With the UK lockdown rules now being in place for almost 2 months it’s a good time for businesses to reflect on where they are now i.e. have things worked out better or worse than anticipated? Obviously this can only be answered if a projection was completed in the first place. Some people only look to produce more detailed forecasts when they absolutely need to, but how successful is anybody doing anything in their first attempt. Assessing how accurate previous forecasts have been really do aid in the improvement and accuracy of future forecasts. As such, we are strongly recommending that all businesses do undertake this exercise, however much they think they need them now. Whilst forecasting is based upon judgements, expectations and estimations, the classic rule of “practice makes perfect” certainly applies.
With this in mind and as previously communicated, we are inviting all Xero clients to use the 90 day forecasting tool offered by Fluidly, free of charge. If not done so already, just let us know if you would like access to this and we’ll arrange for your account to be set up.
Long term projections
Businesses are being impacted in unprecedented ways today but this is expected obviously expected to leave its mark for a long time. As the “new normal” changes, it is more important than ever to have a robust plan, looking beyond short term survival and funding needs. Whilst the Government is making unprecedented levels of support available now, it’s vital that you fully understand your financial position in the future too.
There will no doubt be some important decisions to be made, including but not limited to the following:
Staff Costs: The impact/timing of wage related costs, furloughing staff or making layoffs.
Rent/Mortgage: Short term and long-term plan and expectations.
Rates: The impact of Grants and timing of future payments.
Sales: The reduction, how long before sales recover and to what level.
Trading: When sales do recover, will you have the resource and capacity to fulfil orders.
Insolvency: If customers and suppliers fail, what will that mean to you.
Debtors: Delayed collections are inevitable for most but how much will this impact the business.
Creditors: Could you improve payment terms or change suppliers.
Purchases & Stock: Could you minimise stock levels and delay capital expenditure.
VAT: VAT implications for your changing sales/purchases and payment dates.
Corporation Tax: The cash flow implications for delayed payments to HMRC.
Overhead Reductions: Possible cutting any avoidable costs.
So whilst Xero and Fluidly’s free solutions can’t offer a long term forecasting tool, we’re inviting you to join us on one our free online forecasting and business planning briefings. As well as receiving expert guidance on how to complete your own forecast you’ll receive a comprehensive Forecasting Template free of charge.
No two businesses are the same and we accept there is no single solution suitable for all businesses. With Xero introducing their new tool it just seemed the right time to send a reminder of some of the free tools and support available.
If you’d like to discuss any of the above in more detail or need any support on Xero, please do not hesitate to contact your normal contact here at Burgis & Bullock.