Is It A Cash Flow Problem Or A Profit Problem?

Why you need Weekly Cash Flow Forecasts

Cash flow is the lifeblood of your business. But how can you predict when a shortage might arise? This article explains why relying on long-term forecasts is unreliable and how weekly tracking can give you the agility you need.

Forget the Crystal Ball: Focus on the Week Ahead

Imagine trying to predict the weather a year from now. It’s nearly impossible! The same goes for long-term cash flow forecasts. There are too many variables.

Weekly forecasts, however, are a different story. They provide a much clearer picture of your immediate financial health. With this knowledge, you can proactively address any potential issues.

Key Weekly Cash Flow Metrics

Here are some crucial metrics to track each week:

• Cash In: Track all incoming revenue, including customer payments.
• Cash Out: Monitor all outgoing expenses, from payroll to inventory purchases.
• Debtor Days: This measures how long it takes customers to pay you. Keeping an eye on this metric helps you identify slow-paying clients.
• Time Spent by Staff: Understanding how your team allocates their time allows you to optimise workflows and ensure everyone is focused on revenue-generating activities.
• Quick Cash Flow Forecast: 5-minute cashflow forecast – This tool provides a snapshot of your immediate cash availability.

Getting Your Finances in Order

To start this exercise, you must look at your last completed financials. This may mean getting your last set of annual accounts completed to allow you to have a starting point for then getting monthly accounts up to date.

For those clients with accounting software, you will also need to have your opening position for the current financial year adjusted for the changes made completing your year end. Clients of A4G always get these provided once accounts have been approved.

This will ensure you have a complete and accurate starting point.

Then you need to ensure all of your sales and purchases invoices are on your system. If you have Xero you can use automation apps like Dext to assist you with this making it much faster and more accurate.

Then get your banks and credit cards reconciled back to the statements and your wages journals entered onto your system.

If I’ve completely lost you now, give your client manager a call who can assist you in your next steps!

If you aren’t on any accounting software, now is certainly the time to consider the benefits of having up to date financial information at your fingertips.

Our Cloud team are happy to get you set up with a software that suits you best and trained with some great offers on current licenses subscriptions to make it an easier transition.

Even if you hate the idea of software, please at least speak to us about using our Excel template which can give you a quarterly profit and loss account which is still likely to be an upgrade on the current information you have available without an accounting software.

Does that mean I now have monthly management information?

Yes and no.

You have some information to help manage your business, such as money in accounts, money owed, and money owing. However, this is likely to be a small amount compared to what you may need in the coming weeks and months.

One of my favourite reports is the prior year report, which shows you the same month for up to the last 5 years. How powerful is that!

Nearly all businesses have some form of seasonality, so it’s good to compare like with like. It helps to put things into perspective. If business is slower right now, it may compare to a previous year before you had grown or changed. This allows you to recall what your business looked like then, such as the number of staff, storage or office space required, or what you did to achieve that growth. This information helps you plan how to replicate that now.

Many successful businesses I know have their own spreadsheets, charts, or boards with the KPIs that matter to them.

Many of these KPIs are sales-oriented, like orders placed and business pipelines. When these tie in with accurate monthly management accounts received within 10 days of month-end, these businesses really come alive.

But just monthly information won’t be enough to manage in the coming days.

Speak to us about what information is important to manage your business on a weekly basis, as each industry can be slightly different.

How do I then go about managing cash flow?

Many businesses still manage cash flow by what’s in their bank accounts. Some may take it a little further by looking at what is owed to them from debtors, adding cash in the bank, and subtracting their trade suppliers. However, neither of these methods is comprehensive and certainly not fit to protect your business as much as possible over the next few months when we hope things will return to some semblance of normal.

If you use accounting software, there are some great tools available to help you monitor weekly and monthly cash flow.

If you aren’t using such software, now is the time to start so you can adapt quickly to changing conditions.

If you’re still unsure, you need a way to monitor the suggested KPIs, and some of these must involve cash movement. You need to know cash available, weekly cash in, and weekly cash out at a minimum.

Our 5-minute cash flow tool can help provide an overview of the rest.

But what about big bills like VAT?

Weekly forecasts are fantastic for immediate cash flow visibility, but what about upcoming VAT payments and other large, planned expenses? This is where you need 90 day forecasts.

This extended view helps you anticipate upcoming financial obligations, including VAT, and ensures you have the resources available when they’re due.

Early intervention is key. By identifying potential shortfalls well in advance, you have time to take corrective action. This could involve negotiating payment terms with suppliers, scheduling strategic sales pushes, or even securing a short-term loan. The point is, with a 90-day view, you’re not scrambling at the last minute or leaving yourself personally exposed.

Are you worried about upcoming VAT payments or other large bills?

Don’t wait until the pressure is on. Call us today and we’ll help you develop a personalised cash flow management plan that considers your unique needs and upcoming obligations.

Taking a proactive approach will give you peace of mind and ensure you’re never caught off guard by a big bill. Remember, prioritising cash flow through planning and early intervention is far better than reacting to problems after they arise.

If you can measure it, you can manage it

A recent survey of businesses revealed that a mere 2% manage cash flow, invoicing, and payments on a weekly basis, while a significant 50% only complete their bookkeeping records for VAT return purposes.

This reactive approach indicates that half of the surveyed businesses prioritise compliance over continuous financial health monitoring. By focusing solely on meeting tax obligations, you may be overlooking critical financial insights and not making informed business decisions.

If you can measure it, you can manage it – quickly and efficiently.

This is also an opportunity to get ahead of your competitors.