Start Up support for completing a Cash Flow Forecast
27 March 2019
In this blog, Access to finance advisor Joanne Barlow discusses the importance for businesses to manage their cash flow properly.
At GC Business Growth Hub we know that running a business can be lonely, tough and demanding.
From experience, I know that many established businesses feel tempted to concentrate on their customers or processes and leave the financial side to an accountant or bank.
To grow a new business and then stay in business it is important to generate enough cash to pay the bills at a time when the payment is due and buy supplies when they are needed. It is important to focus on cash first, then profits and then future growth.
Even if you are not applying for funding, it is critical for any business to monitor the availability of cash and plan for a variety of future cashflow scenarios, such as;
- What if my main customer pays later than the terms agreed?
- What if I use available funds to purchase an asset rather than taking finance?
- What if the cost of my supplies increases?
- How will increased staff costs impact my cashflow?
- What if growth impacts my credit limit with my suppliers?
Before considering different scenarios it is important to get a basic Cashflow started and gain confidence in the business’s ability to cover liabilities as they fall due. That is why many businesses operate a 12 month forecast and also a 12 week forecast.
Whilst this type of activity is non-income-generating for a business owner, taking time out to make sure cash is going to be available is key because you are investing in your future.
The first step for a Cashflow forecast is to write down your assumptions. Assumptions are the expectations relating to your projections and include items such as:
- What products or services do you expect to sell in month one?
- How do you expect sales to grow over the coming months?
- Are you adding in specific income amount for different products or services or are you taking an across the board average?
Plot in your numbers using the assumptions you have made. Make a note of all assumptions and keep them safe as you will want to refer to them later when you are reviewing actual Cash flow vs your original forecast.
Then consider variable costs and make a note of Assumptions for Cost of Sales:
- When will suppliers be paid? Are credit terms available?
- If different suppliers have different payment terms have you input figures in line with actual terms or are you using an average time to pay?
There are simple templates available here.