Financial forecast chart laptop

“It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is most adaptable to change”.  Charles Darwin

Never have Darwin’s famous words depicting the survival of the fittest rang truer than in recent weeks.  We’ve witnessed many of our small business clients having to hit the pause button on their usual business operations in order to find new ways to generate an income amid Covid-19.  We’ve seen restaurants offering new delivery/takeaway services, caterers switching to delivering fresh produce, personal trainers and fitness instructors offering virtual training sessions, business coaches offering online classes and much more.

If you are one of these inspiring business owners having to diversify during this uncertain time.  Here are our tips to help you manage your cash…

Manage your cash flow

In a pandemic such as this, it is more important than ever to understand and manage the cash flow of your business, including preparing a detailed short-term cash flow projection.  This is particularly important if you are planning to diversify and offer a new product or service.  Financial forecasts are valuable for all businesses, and are perhaps even more important for small businesses, where a healthy cash flow is essential, given that they may not always have as much cash available to draw on in case of emergency.

Why is cash flow forecasting important?

A cash flow forecast will help you to plan how much you plan to make in sales (over a set period), what your expected costs will be (over the same set period) and enable you to try and understand when to expect cash will come into your bank account and when it will go out of your bank account (over the same set period).  By having all this information set out, you’ll be able to make savvy decisions about your business and help you answer questions like “will I be able to launch a new product/service that will generate an income?”, “Am I at risk of running out of cash”?, “Should I consider borrowing money?”, “When will I be able to take more money out of my business?” And so on.  Another question that a cashflow forecast can help to answer is “how much money should I borrow?”  Lenders will need you to be specific about how much you need to borrow, and you don’t want to underestimate and run out or overestimate and pay too much interest!

To build a cash flow forecast, we recommend forecasting sales, profit and loss, and cash flow.  Download our free cash flow forecast template to help keep you on track.  Alternatively, our friends at Spreadsheet Solutions have some great forecasting tools.

Top tip:  Try to include all your sales, costs and cash transactions – it’s important to try and be as inclusive as you can.  When considering how far to forecast, remember that short term forecasting will keep things more realistic.  Nobody can predict what effect the economy will have on your business, particularly at the moment.

You may also need to consider the impact of the following on your cash flow forecasting:

Chasing debtors and reducing costs

Late payments can have a massive effect on your business.  They can have major consequences – the adverse effect on cash flow and the inability to pay staff and suppliers on time being just a few.  Dealing with late payment and unpaid invoices is difficult at the best of times – you need to push clients for prompt payment but you also need to maintain a pleasant relationship so you can continue doing business with them.  With many businesses currently struggling with the knock-on effect that Coronavirus is having, asking for money from our business colleagues will be even tougher to approach.  You may need to make provision for late payment in your cash flow forecasting.

Consider consolidating debt

Consolidating debt to a more attractive lending platform with better interest rates is well worth considering.  If this is an option you are considering, we would be happy to recommend a broker should you wish to discuss it further.

Negotiate longer payment terms

An effective way of improving your business’ cash flow situation is to lengthen your payment terms with vendors and suppliers.  It can be an efficient way to free up cash to expand or diversify your operations, enabling you to keep the cash in house while still collecting revenue. This will give you the ability to put your cash to use in ways that can add to your bottom line.  If you are thinking of negotiating payment terms with a supplier make sure you are honest and reasonable.  It is also a good idea to try and make your proposition mutually beneficial.  For example, will the freed-up cash allow you to grow your sales, thereby increasing your order volume from them?  Spend some time thinking about how you will pitch the proposition to them.

As always, our team at Bells are always happy to chat through any questions you have and offer our advice.  Please don’t hesitate to contact us if you need help.  We can support you.