What are the benefits of a cash flow forecast?

Keeping a keen eye on your cash has always been an important part of running a successful business and at the moment, given the current COVID-19 pandemic and the uncertainties that many businesses are facing at this unprecedented time, preparing a cash flow forecast is more important than ever to ensure your business will have enough cash to continue trading through this current uncertainty.

Having an accurate, rolling cash flow forecast will give owners and directors a better understanding of the overall cash position of a business and will help them make important decisions about the future.  Cash is an essential part of any business and is required to pay staff and suppliers. A lack of cash could indicate that the business has short term cash issues or insolvency is around the corner.

So what is a cash flow forecast?

It is a list of cash inflows and cash outflows which can be completed on a weekly or monthly basis depending on the needs of the business. It will help identify potential shortfalls in cash balances in advance and will allow owners and directors to make adjustments to the business.

How do you prepare a cash flow forecast?

  • List all the payments that the business is expecting to make over the next year noting the weeks or months that these become due.
  • Create a sales forecast which sets out the cash expected to be received by the business over the next year. It is important to be realistic with sales forecasts and align cash inflows to your standard payment terms.
  • Each month subtract the payments from the receipts

An advanced set of management accounts will normally include a cash flow forecast which is aligned to a forecasted Profit and Loss Account and Balance Sheet.

Many banks supplying loans under the Coronavirus Business Interruption Loan Scheme will require a 12 month cash flow forecast and HMRC may also request one when reviewing a “Time to Pay” application.

We can help businesses prepare these by either supplying a cash flow template or providing advice as necessary.

Get in touch with the team today on info@plusaccounting.co.uk

Author: Chris Morey, Director