This period of high inflation, ever-increasing costs and future uncertainty is showing how essential it is for businesses to manage their cash. Whilst it is challenging to forecast what is going to happen with costs going forward, attempts to forecast incomings and outgoings are vital to ensure an unmanageable deficit does not creep up on businesses. All companies need to focus on cash flow management, considering what they can do to improve their cash position, whilst maintaining good relationships with customers and suppliers.
6 key areas of cash flow forecasting for surveying firms:
High levels of inflation are causing costs to increase across the board which can quickly lead to cash flow issues.
All companies need to focus on cashflow management, considering what they can do to improve their cash position, whilst maintaining good relationships with customers and suppliers.
Negotiating advance and stage payments is common practice, but there should also be a greater emphasis on debtor collection and stretching creditors whilst maintaining strong commercial arrangements.
Another consideration is invoice factoring and debtor insurance to reduce the risk of significant bad debts and slow payers impacting the business. These can however be expensive, and the associated costs should be considered in conjunction with the likelihood of defaults and the work of in-house debt collection.
For LLPs, tax is payable by partners which can sometimes be overlooked by individuals who then draw further funds to cover their liabilities. To alleviate such a potential issue, consider withholding the tax payable rather than leaving individual partners to do it.
Limited companies could be required to make quarterly instalment payments (QIPS) of corporation tax which should be considered.
All of the above demonstrate that forecasting is essential. Profit and loss forecasts are common, and expected balance sheet positions are normally considered too, but cashflow forecasting is often overlooked.
MANAGING CASH FLOW WITH 3-WAY FORECASTING
- 3-way (covering the P&L, balance sheet and cashflow) forecasting is imperative to ensure periods of negative cashflow are avoided.
- Whilst most people think of the cash impact of items hitting their profit and loss, there are balance sheet movements that have significant effects on a company’s cashflow, which do not appear in the P&L. These include VAT payments, future payments for accrued costs or prepayments required in advance of receiving goods or services.
- Expenses should also be considered in detail to ensure every cash flow change is considered. There could be an end of a rent-free incentive period, a step change in rent, recruitment or referral fees, even professional subscriptions, all of which will need paying and should be considered in your forecasts.
A further summary is provided below and our Business Forecasting specialists can work with you to ensure you are able to identify future cash flow gaps and react accordingly in advance.
In addition to our own specialists, we also have links to applications to help cash flow management and forecasting, such as Fluidly through our Systems Advisory team. A webinar discussing more about the application is below: