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What a feeling.
We’ve simplified our home loans and dropped bundled packages.
No more packages. No annual package fee. Same great rates.
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Article | 4-minute read
The livelihood of any business depends on cash flow – having the ability to forecast accurately a vital skill to navigate financial uncertainty. Our guide will offer you some tips on creating reliable forecasts for the various scenarios your business may face.
What is a cash flow forecast? In a nutshell, it forecasts the incomings and outgoings of cash over a given period – like the next six months or financial quarter.
It also tells you what cash surplus or deficit should be left over at the end of that period.
Cash flow forecasts can also help you make day-to-day decisions by assisting you to evaluate:
Perhaps the greatest value of cash flow forecasting comes from its benchmarking qualities.
After the period you've forecasted has ended, you can go back and compare it to reality by judging the performance of your business and identifying unexpected cash flow issues. That can help you remain in greater control in the future.
Your cash flow forecast should be completed for each month. Remember to take into account any:
If you have previous trading history to go on, the forecasting process will be easier. You can take your reliable data from previous trading periods and increase or decrease the amounts depending on your insights into future markets.
But accuracy is key. For example, if there's a lot of talk about the economy getting worse or turning a corner, don't be too quick to make any blanket assumptions.
Talk to your customers and suppliers to find out about confidence in your specific sector. Then, check your findings with a credible accountant with experience in your industry to fine-tune your data.
The more effort you place into dispelling assumptions now, the more accurate your cash flow forecast will be.
Once you complete your cash flow forecast you'll either find that you're heading towards a cash surplus or a cash deficit position. If it's the latter, don't panic – it's actually a good thing that you spotted this now, as you’ll have time to adjust course.
If the cash shortfalls you've identified are greater than your overdraft facility, talk to us. We'll work with you to help you further identify the sources of your cash shortfalls and the solutions you can use to reduce or eliminate them.
Regardless of your findings, you should:
It's all about staying in financial control so you can show other stakeholders and advisers that you know the direction your business is going in, while reducing the potential impacts on ongoing uncertainty along the way.
1. Prepare the sales forecast (e.g. sales will increase by 10% for the first six months) and an opening bank balance (i.e. actual cash on hand).
2. Prepare different type of cash inflows and assumptions for the next 12 months.
3. Prepare different type of cash outflows and assumptions for the next 12 months.
4. Review your projected cash flow versus the actual if you are an existing business (e.g. to test your assumptions or to check if your forecasts need some fine tuning).
For businesses looking into the future it is important to be prepared for uncertainty with a resilient cash flow plan and manageable debt.
Shortening your cash cycle will boost your cash reserves, keeping your business going and providing a buffer in times of financial uncertainty.
In the current environment, you may have had to take short-term reactive measures to cut your business’s expenses and monitor any overheads closely.
Any advice does not take into account your personal needs, financial circumstances or objectives and you should consider whether it is appropriate for you.
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This page contains only general information which is subject to change and is not a substitute for commercial judgement or professional advice. This information does not take into account your personal and financial needs, particular objectives and/or circumstances, and you should seek appropriate independent advice (which may include property, legal, financial, taxation and accounting advice) before making any decisions, investing, or acting on it.
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