Do you have enough money? Cashflow Planning

Kirsty Young Advice and Tips, Budgeting, Business Tips

At the time of writing this blog, the UK (and indeed the world) is continuing to experience difficult trading conditions.

As a small business owner, it’s even more important to have some way of knowing if:

  • You have enough cash now and in the immediate future.
  • You have enough cash if something unexpected happens.
  • You have enough cash if you want to grow and invest more in your business.

You can get some clarity on this crucial information, by creating a ‘cashflow forecast’.


What is a cashflow forecast?

A cashflow forecast is basically a “best guess” at what your bank balance will look like at the start of every month. Your cashflow forecast takes into account an estimate of what money you have coming in and going out, and uses these figures to predict your bank balance at the start of each month.


How do you create a cashflow forecast?

To create a simple cashflow forecast, you could just look at a one-month scenario. However, most business owners will find a 3-6 month picture far more useful. That’s where a template spreadsheet comes in handy. (For a free downloadable template, have a look at our previous blog on cashflow. )

When you have the template, enter the following figures:

  • your bank balances at the start and end of the month
  • your monthly income
  • your monthly expenses

You will then be able to see what your bank balance could look like each month.

You might also want to work out what might happen in certain scenarios. Copy the spreadsheet tab and create a new one. Then you can use this duplicate tab to have a play around with what the forecast looks like if certain things happened, such as:

  • What happens if your customers start to pay late?
  • What happens if you take on a new employee?
  • What happens if you want to invest in some new equipment before your tax year end?

Looking at this can give you clarity about how good (or bad!) a position your business is in, and its ability to spend money or survive problems.


What to do if you look like you will run out of money

Don’t panic! If the monthly cashflow forecast isn’t looking too healthy, in reality there are usually many things you can do to get it looking better.

Ways to improve your cash balance could include:

– Review your credit control systems

Are you actively and regularly chasing overdue invoices? In our experience, most overpaid invoices are simply oversights, so reminding regularly is key.

– Review how easy it is for customers to pay you

It’s worth checking if you are unintentionally making it hard for customers to pay you!

    • Can you help customers set up direct debit?
    • Can they pay by card with a machine or giving details over the phone?
    • Are your bank details on all your invoices?
    • Can you set up “one click” online invoicing and card payments?

– Are you giving customers too long to pay?

We see many new start-ups giving 30+ days to pay, usually because they thought it was ‘the done thing’. Shorten the time from invoice to payment by reducing these terms to 21, 14 or 7 days.

– Are you paying early?

Many business owners like to get a reputation for being a great payer, and so will pay earlier than the invoice due dates. While this is nice to do, in tougher times this may need a rethink. Just to say, if you have smaller business that have come to expect super prompt payments from you, it may be worth having a conversation before starting to do this!

Whilst we would never suggest paying late (it’s one of THE key issues in the small business world), simply paying on time rather than early can keep cash in the bank balance at the right time.

– Tax bills

This point is especially true with tax bills. There is no benefit in most cases to paying tax early. So simply wait until the proper due date.

– Other ideas

These are some solid simple wins. Of course, there are a lot more, including accessing things like business credit cards that give time to pay, but this is a start.


Next steps

Download the template and get going!

In an ideal world, you’d plan at least 12 months in advance. However, if you’ve never done cashflow planning before, try to plan at least 3 months ahead. It will be a real eye opener!

If you enjoyed creating a cashflow forecast in Excel, you can step it up a gear. If you have your accounting records in ‘the cloud’ through apps like Xero and QuickBooks, you could look at apps like ‘Float’ to keep this plan up to date.


Not sure you want to create your first cashflow forecast on your own?

Just contact us. We offer a cashflow forecasting services for small business owners. As long as you have access to your financial figures, we can definitely help.