Updated: Dec 21, 2020
By Michael O'Donnell
3 Jul 2020
As a business owner, crystal balls, fingers-in-the-air and gut feelings may have served you well when it comes to cash forecasting. But as you navigate out of the Covid19 difficulties, having a simple and quick method of understanding your cash flow status is critical. A rolling 50-Day Cash Outlook tells you what payments are going to be made, based on the best information available to you at that time. It will give you either reassurance that all is okay, or whether there are issues coming up which you need to act upon.
The drawback of the more widely-used forecasted Cash Flow Statement is that it only shows the movements totaled by month. It does not take into account day-to-day timing; that generally you receive your clients’ remittances towards the end of the month AFTER you’ve had the chest-squeezing experience of paying your payroll, payroll taxes, accounts payable all between the 20th – 25th of the month. Add to that VAT every couple of months and Preliminary and Final CT payments.
But that’s Murphy’s Law. Your clients pay you after they’ve paid their own employees etc. We are all connected.
You should prepare the Outlook weekly or fortnightly at least. It tells you where the pinch-points are, as early as possible. You then need to delegate to your team who needs to do what and by when. (e.g. Credit Control manager, AP manager, etc.)
What do you need to create a Monday morning 50-Day Cash Outlook?
a) Current bank balances (including overdraft facilities), across all bank accounts. Foreign currencies converted to reporting currency.
b) Details of your Non AP/AR movements, such as VAT, P30s, Taxation and direct debits such as rent & overheads, credit card payments etc.
c) Unavoidable loan repayment obligations
d) Sales forecast and Expenses Budget (incl. VAT) to estimate cash movements for beyond current month.
e) Exports from your accounting system:
- Detailed Aged Payables report and Detailed Aged Receivables report
- Payroll GTN (Gross-to-Net) listing
- Funding interventions needed to stay solvent
The outlook can be on either a simple entity basis, or for multiple business units/group entities.
When populated, you will get a graphic similar to above – showing you the cash heartbeat for your business over the next 50 Days. It will either give you reassurance or increased awareness of issues to be concerned about. It also gives you sufficient time to take action.
Each week/fortnight it needs to be refreshed. Days and expectations will change slightly or materially as fresh information comes to light.
Cash flow needs to be managed and monitored, in good times and bad. A rolling 50-Day cash flow forecast enables you to see the critical issues that are needing action. It also brings clarity on whether everything is okay and you can get back to driving your business forward. Importantly, the outlook should not be taken as just another report - it must be reviewed and initiate actions by the team.
If you would like help on preparing Cash Outlooks and other Working Capital management tools, contact me at firstname.lastname@example.org, linkedin messenger or via the website.
W: www.inctrl.ie | E: email@example.com