Tony’s Top Tips: What to Include in a Cash Flow Forecast

Never has cash been more important to SMEs than ever during the current coronavirus pandemic.

Due to this, forecasting and continually updating cash flow information is crucial.

Forecasting is not only important to support any funding applications that are required to meet working capital requirements during the period of disruption, but also to ensure that the business has enough working capital to recover and grow when trading conditions return to normal.

When applying for finance, lenders will require a cash flow forecast.

It should also be noted that in the first instance, you should contact the main banks, as BCRS can only lend to you if you have been unable to access bank funding.

To support loan applications to BCRS, we need a cash flow forecast to demonstrate the amount of funding required.

This may seem daunting for a business owner who is now working from home with limited resources, so we have shared some tips on what to think about and include when putting a cash flow forecast together:

  • Build your cash flow forecast on an Excel spreadsheet – this means it can be updated as and when you have more clarity on what the future looks like
  • Break it down into two parts:

The first part is for the period when the business won’t be trading:

  • Take your last 3 months bank statements and pull out the overheads that you will need to continue to pay over the next 3 months (DDs, salaries, rent, loan and mortgage repayments, HMRC payments due)
  • It is always worth trying to negotiate more favourable terms with suppliers and landlords during this period of disruption
  • Add in receipts from your debtors ledger and spend time actively chasing these debts.
  • Also add in amounts due to suppliers from your creditors ledger
  • Next add in any grants or other government support you are eligible for

The second part is for when the business starts trading again:

  • You need to consider how quickly you will be able to start trading from an operational perspective and also how quickly orders/sales will come back on-line

Once you have completed this forecast it is worth updating this daily when there is more visibility on government support and you have more knowledge of when debtors have paid or are likely to pay and any favourable terms you have agreed with suppliers.

This will then highlight whether there are any additional cash shortages that need to be covered and if this is the case you should get in touch with lenders to see if they will be able to lend you more money to support any additional working capital requirements identified.

Conversely if the cash position improves it may be worth paying off some of your borrowing; particularly if, as is the case with BCRS, they do not charge early repayment fees.

It’s worth spending the time adding in actuals over the next few days and weeks to improve the accuracy of your forecasting.

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