CASH FLOW FORECASTING

The global pandemic has thrown the business world into a period of extreme uncertainty, leaving many business owners wondering what actions to prioritise. Business owners and individual employees are worried about financial liquidity – and with good reason. There are a few key actions you can take now that will assist in your business’s recovery in the coming months. First, and foremost: take direct action to safeguard the health of your employees and customers. Without appropriate measures in place to establish trust, business recovery will be difficult. The second key action is a behind-the-scenes exercise. Sit down and create a cash flow forecast, on a week by week basis, for at least the next six months of operations. This should include a best- and worst-case scenario. This exercise may produce confronting results, but without a realistic picture of potential outcomes, it’s not possible to plan for success. It’s highly likely that large companies are already creating these forecasts, and they are an equally useful tool for mid-size to small businesses as well, especially for smaller businesses who may not have access to cash reserves. When you sit down to create your forecast, approach it with creative thinking. As we’re in the middle of an unprecedented global situation, it stands to reason that typical accounting assumptions may not be the appropriate place to start. Think about your forecast on a personal level – what are you hearing now from your customers? What does this tell you about how they may feel and behave towards your operations in the coming months? Most importantly, what scenarios can you envision arising from these behaviours? Creating a cash flow forecast will give you a path forward that includes business continuity, and resultingly, increased security for your employees – something they are likely in need of at this moment. Think about whether you can involve the team in the planning exercise, taking their insights and experiences with customers on board to stress-test whether your scenarios are realistic. This is also an opportunity to build employee loyalty and team morale. So, now that you know what you need to do, what are your next steps? Your projections and planning should be based on some basic assumptions that apply to most businesses right now. These assumptions can be broken down into 5 areas of business operations:
  • • Sales: assume that your sales are going to fall drastically – potentially more than they have done so already. This absolute worst-case scenario should be in your plan. What does less than 50% of regular sales look like? What about even less?
  • • Receivables: your suppliers and business customers are struggling right now too. If you have outstanding items, look to begin collecting what you can now.
  • • Inventory: realistically assess what you need to meet current or future reduced demand. Make sure that you’ve adjusted your own ordering appropriately to prevent loss from date-reliant product.
  • • Production: assess whether it is sustainable to continue production throughout the pandemic, and if it isn’t, what do next steps look like? Make plans for reduced or shuttered production, and action as necessary.
  • • Available Credit: if you have access to credit, assess what the trigger is for necessitating access. Consider drawing down now.
Post-pandemic planning is the next step, especially if you’ve identified through your forecasting there is a high likelihood that your business will be able to restart quickly and easily. The question then is, how will you restart and what will that look like? This is an opportunity for innovation – a chance to improve operations, create new solutions, and decommission any practices that aren’t working well or adding value to your business. Work with your employees on this project to not only maintain productivity, but ensure that you are able to restart as an energised business with an engaged workforce committed to success. Think of this as an opportunity to demonstrate strong leadership, produce a revitalised business offering, and take your operations to the next level.

How can Halkin Business Partners help?

Speak to our financial and tax consultants today to see how Halkin Business Partners can help you with your financial needs.

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