HOW TO CREATE A SIMPLE CASH FLOW FORECAST

cashflow

Today I’ll be talking you through how to set up a simple cash flow forecast

So what is a cash flow forecast? It has two parts – incoming cash and outgoing cash. I will talk you through the key elements.

Firstly decide if you need to monitor cash on a weekly or a monthly basis.

I advise our clients to set up a weekly forecast, because so much can change in a month and a weekly forecast gives you greater insight.

If your budget can not stretch to having a piece of software that manages cashflow, then just use a spreadsheet.

So let’s begin….

Create and label a column for every week.

Now we’ll look at cash coming in. This is recorded in the top part of the cash flow forecast.

Using your aged debtor report or the list of outstanding invoices, work out how long, after invoicing, it usually takes for each customer to pay you. You may need to go back over your records to be able to work this out.

If there are any customers with large balances owing, put them in a separate row on the forecast.

Enter the funds due in from your customers or clients in the columns that you think you will receive the funds in.

If you have recurring invoices or invoices that are raised each month for the same amount you can create a row for these as well.

Do you have any orders or quotes that you have not invoiced out yet?

Work out when you are likely to fulfil these orders or complete the work, and also when you will be sending out your invoice (preferably by email, because it’s quicker).

Then calculate when you’ll likely get paid for these orders. Create a new row and add the amounts you’ll get paid in the right week’s columns.

Anyadditional sources of income? Say a bank loan.

Yes, you’ve guessed it… add another row and add the amounts to the relevant columns.

Now, add up all your income.

This‘ll show you how your income will come in every week over the next few months.

Now for the second part of your cash flow forecast – your outgoing cash and expenses.

Use your aged creditor balances or a list of supplier invoices that are due for payment, and work out when you will pay them.

Create a new row and add these figures in the appropriate column in your forecast.

Are there items that you have ordered or suppliers that have not invoiced you yet?

Create a new row for these and enter the amounts in the columns where you will most likely pay them.

Do you have any standing orders and direct debits going out of your account?

Look at your bank statements or online banking to see what came out of your account and when.

Create a new row for each standing order and direct debit in your cash forecast and note what date each leaves your account.

Be careful here. Check that you aren’t double accounting – some of your supplier invoices might appear on your aged creditors report but could be paid by Direct Debit or Standing Order.

Any credit cards or loans?

Again create a row for these and put the amounts in the correct column.

Now for payroll. Put the net pay figures, that is the amount that gets paid to the employee, in when they go out of your bank account.

The PAYE and National Insurance Contributions figures need to go in between 19th to 22nd of the month, depending on how you pay.

And don’t forget HMRC. Enter any corporation tax and VAT in the right column too.

Any other outgoings?

Bank loan repayments? Yes, time again to create a new row and enter the figures.

Now calculate the column totals for your outgoings

Obviously there will be a lot more entries on your final cash flow forecast both for income and expenses but this should give you the idea of how to put a simple one together.

Finally, the calculation part. Include a row called Opening Balance.

Enter the ‘Opening Balance’ from your bank statement. Then, beneath, include a row called ‘Closing Balance’.

Now here’s for the most important bit:

Your closing balance will be as follows, for each column:

Closing Balance = Opening Balance + Incoming Cash – Outgoing Cash

Carry forward your Closing Balance for each column into the Opening Balance cell of the next column. Then copy your formulas across.

Then ongoing, you need to manage your cash flow and up date it, as money comes in and out and add more columns as you go.

Personally I think a 3 month weekly forecast works really well for most businesses.

This example is of a very simple cash flow forecast.  As I said earlier you may decide to use a software package for calculating your cash flow forecast if budgets allow.

Get in touch via email enquiries@nozeyparkers.co.uk to find out how we can help you achieve success for your business.

Please call 0808 123 1399 now to find out more about our support services. Your first consultation is free.

Tina Marie Parker, business advisor, trouble-shooter and turnaround expert, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast

KEEP YOUR CASH FLOW HEALTHY

healthy-cash-flow1

Do you have a smoothly running cash flow?

Even if you answer ‘yes’ to this question you are sure to learn new ways to improve your business, so please read on.

Today I’ll be sharing top tips on how you can actively managing a healthy cash flow.

So, what’s poor cash flow?

Firstly, poor cash flow does not mean decreasing revenue. Poor cash flow is when you do not actively manage your payments coming into and payments going out of the business.

Here are a couple of examples:

Many businesses buy materials and pay employees, before customers pay. If you are a consultant, you’ll generally be providing your services before invoicing. And if you work for larger companies, the NHS or councils, three months or longer can be the norm.

My advice is to reduce the costs of your overheads wherever possible. Don’t overstock, this is just money tied up in goods. And if you need new machinery or vehicles, consider leasing them, which is much better for your cash flow.

At Nozey Parkers, we advise our clients to ‘smooth out’ their cash flow by following some of the following best practice:

1.     Change your customer payment and credit terms

Consider asking for an upfront percentage payment

How much you ask for, would depend on the size of the order and project length

2.     Invoice at the start of the month

This is especially relevant if you have an annual contract

3.     Put good credit control in place

Chase debts, even if payment is overdue by just one day

Your customers will prioritise you over other suppliers

And you will soon get to know who are the good payers, and who aren’t

4.     Consider using an invoice factoring company

This means that the factoring company buys the debt off you at an agreed percentage. When payment is made, they will pay the balance minus agreed charges and fees. This helps with your cash flow

5.     Pay suppliers when payment is due – not before and not after

Keeping within payment terms is crucial for your good reputation and credit rating

But paying too early means the cash isn’t in your bank account!

6.     Offer early payment discounts

You don’t need to offer much. A 3% discount is generally enough to encourage early payment from some customers and this means more money in your account

7.     Accept credit card payments

Customers who are experiencing cash flow problems, may be happy to offer credit card payment

8.     Credit check customers before you start doing business with them

9.     Raise invoices promptly

Ensure you raise and send invoices immediately goods are sold or work is completed

I prefer to email invoices to a pre-agreed email address, to help speed up payment

10.  Speak to your team

If you are experiencing cash flow problems, let other members of the team know, so they can delay on purchasing or staff recruitment

The most important tip I can give you is to have a robust cash flow forecast to monitor and manage your cash. This is your company’s early warning system.

Get in touch email enquiries@nozeyparkers.co.uk to find out how we can help you grow and achieve success for your business.

Nozey Parkers are here to help you and your business thrive. Please call 0808 123 1399 now to find out more about our support services. Your first consultation is free.

Tina Marie Parker, business advisor, trouble-shooter and turnaround expert, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast

CASH IS KING

Cash is King

You’ll have heard the phrase ‘cash is King’.

Cash flow is what drives business forward. Being the best at what you do; the cheapest; even the biggest… it’s irrelevant, if you don’t have good cash flow.

So what exactly is cash flow?

In simple terms, cash flow is the flow of cash in, and out, of your business.

So manage your cash flow, be organised and plan ahead. Get this wrong and your business will fail. Lack of cash means crisis and can lead to bankruptcy.

I hear too many business people brag about their turnover. Unless they are managing their cash flow and making healthy profits, turnover doesn’t mean a thing.

Good cash flow means you can invest in your company’s future growth – buildings, equipment, stocks, research and development. It means you can be proactive and strategic.

Here are my five top tips, based on many years’ experience of turning companies around:

1.     Keep close tabs on your cash flow.

Understand the peaks and troughs of your business. Know when you need to pay out. And when payments are due in, who’s paying on time and who isn’t.

I encourage all my clients to have good credit control.

Most successful business people know how much is in their business bank account… often to the penny.

2.     Know how much it costs you to run your business.

Identify your risks, build in some eventualities, and your own costs… plus profits

If your business relies on high-cost machinery, you may need to look at extra insurance cover. Ensure this is included in your cash flow.

Say you run a maintenance company, and overheads include office costs, wages, vehicles, materials and fuel.

Set up contracts to safeguard your regular income, negotiate payment terms, which work for you and are also acceptable to your suppliers.

Pay wages and suppliers promptly; or if you are experiencing difficulties get in touch and renegotiate payment terms. Your reputation is important too. But most important of all, ensure you’re paid promptly.

3.     Agree clear payment terms.

Plan your payments. Wages need to be paid on time, but there may be other costs you can delay until you have received payment.

Know which suppliers are key to your business. Talk to them and see whether you can negotiate better terms.

Contact your debtors as soon as payment is due.

4.     Ensure you have a robust cash flow forecast.

It will give you peace of mind, and allow you to plan ahead, so you can manage any nasty surprises.

A cash flow forecast is as important as profit and loss forecasts, and budgeting.

Don’t forget most reputable lenders also require a cash flow forecast.

5.     Secure credit from your bank when times are good.

When you’re trading profitably and have a healthy cash flow, secure credit, so when times are hard, you’ll have access to much-needed extra cash.

So don’t be one of those business people who brag about their turnover.

As the saying goes: ‘Revenue is vanity. Cash flow is sanity. Cash is King’.

Get in touch to find out how we can help you grow and achieve success for your business. Email enquiries@nozeyparkers.co.uk

Nozey Parkers are here to help you and your business thrive. Please call 0808 123 1399 now to find out more about our support services. Your first consultation is free.

Tina Marie Parker, business advisor, trouble-shooter and turnaround expert, has been helping businesses for nearly 30 years. From start-ups to succession planning. From companies going through rapid growth to companies desperate to see some growth. She helps them thrive and survive. Great business advice and hands-on support for your organisation, getting the desired results, fast

HOW TO KEEP CASH FLOW HEALTHY

cashflow

In my last blog I talked about why a healthy cash flow is so important to the survival of your business.

Here I want to talk about how to keep your cash flow flowing smoothly and what a simple cash flow forecast consists of.

Poor cash flow does not come from decreasing revenue. It comes from not managing your cash ins and outs correctly. Fast growing businesses may have to buy materials and pay employees before the customer pays up. Don’t overstock on materials and goods as this is cash that is tied up until you manage to use or sell it. Look at your costs on your overheads – can you reduce any of these?

Do you need new machinery or vehicles – it’s better for cash flow to purchase these via leases, which means less cash up front.

Here are ways to smooth out cash flow:

1)      Alter your customer payment and credit terms – you could take a % upfront for example. This could be dependent on the size of the order or how long a project was to run before final payment.

2)      If you deal with annual contract amounts for your clients make sure you are invoicing at the start of every month for one twelfth of the full contract price, not at the end of the month when associated costs would have already had to be paid out.

3)      Make sure you have a good credit control system in place. You have payment terms in place for a reason so ensure that the debt gets chased in even when it is only 1 day late. Your customers will get used to the fact that you chase hard on debts and will make it their priority to get your invoice paid first, before they pay their other suppliers. Also, you will get used to the problem payers and know who you have to chase the hardest.

4)      You could factor your invoices with an invoice factoring company. They effectively buy your debt from you. When you raise your invoices you get paid a pre agreed % from them – say 70%- direct into your bank account. Then when you actually collect the debt from the customer they pay over the remaining 30%, less their charges and fees. This means that you can get a huge boost in cash if needed i.e. possibly 70% of your total debtors balance.

5)      Delaying supplier payments as long as possible, but within payment terms is crucial. This means you can easily get a good credit reference from any supplier if needed and your overall credit rating will remain healthy, so you are easily able to get further credit if needed.

6)      You could offer early payment discounts to customers. I.e. if they pay before the invoice is due you will give them a 3% discount.

7)      How about accepting credit card payments? When you are chasing your customers and they say they are experiencing cash flow problems, sometimes they are more than willing to pay by credit card as that means the funds leave their bank account later down the line.

8)      Make sure your credit check all your customers before doing business with them.

9)      Make sure that as soon as a job is completed, or goods are processed and sent out, that your raise the invoice to the customer. Also, make sure that it gets to the customer asap. Preferably email the invoice to a pre-defined email address.

10)   If managers and other staff members have purchasing powers on behalf of the company, make sure they are aware if you are experiencing cash flow shortages, so that they do not buy anything that is not entirely necessary.

11)   The last, but most important one, is have a robust cash flow forecast to monitor and manage your cash. It is the company’s early warning system.

So what does a simple cash flow forecast contain.

It has essentially 2 parts to it. Incoming cash and outgoing cash.

You have to decide whether you want to monitor cash on a weekly basis or monthly basis. Personally I suggest setting up a weekly forecast, as so much can change in 4 weeks and a weekly forecast gives you greater insight too. You will have a column for every week.

The top part of the cash flow forecast is your income. The main part of this is the funds coming in from your customers. You need to work out how long, after invoicing, does it take for a customer to pay you. The simplest way to start to do this is to print off an aged debtors report from your accounting software. If there are any large balances owing on this report, separate these out, and put them on a row on their own on the forecast. Use the remaining balances and work out the average number of days it takes to get paid by your customers. So you are putting these figures in the week columns  that you think the funds are going to hit your bank account.

You then need to look at what you have in orders/jobs waiting to be completed and invoiced. Work out when you are likely to finish these and invoice, and then work out when you will get paid. Create a new row and put these amounts into the correct columns.

Do you have any other income? If so create a new row and add these figures to the appropriate columns.

You now need to sum up the totals for all these columns. This shows how your income will come in, every week, over the next few months.

Now for the second part of your cash flow forecast – your outgoing cash or expenses.

Again start with your aged creditor balances and work out when you will pay your suppliers. Create a new row and put these figures in the appropriate column in your forecast.

Look at your bank statements or online banking to see what standing orders and direct debits you have coming out when and create a new row for each of these in your cash forecast. Be careful to check that none of the aged creditors are paid for by DD or SO, so you are not double counting.

Are you repaying credit cards or loans? Create a row for these and put in the amounts payable to the correct column.

Don’t forget your payroll. You need to put the net pay figures in when they will go out of your bank account, and the PAYE and NIC due figures need to go in between 19th to 22nd of the following month, depending on how you pay.

HMRC – any corporation tax and VAT due need also to be considered and entered accordingly.

Any other outgoings? Again create a new row and enter the figures.

Now calculate the column totals for your outgoings.

At the top of each column have a row called Opening Balance. In this row you will enter the opening bank balance each week. At the bottom of the forecast have a row called Closing Balance. Your closing balance will be, for each column as follows: Opening Balance + Incoming cash – Outgoing cash = Closing Balance.

This is a very simple representation of a cash flow forecast. You can get an idea of what they should look like if you search on google images.

Also many software packages exist for calculating your cash flow forecast.

If you would like any help with setting up your cash flow forecast then please do not hesitate to contact me on 07784 611399 or email at tina.parker@nozeyparkers.co.uk or look round the website

 

Tina Parker is helping business thrive, when before they had been facing overwhelm and an immense struggle to keep going, that closure may have been easier. The business owners relax in the knowledge that their business is running efficiently and profitably, and their staff are motivated and driven.

WHY CASH FLOW IS KING

Cash is King

Many small businesses, and some bigger companies too, forget to monitor their cash flow, and it inevitably leads to a crisis, and in some cases, insolvency. In simple terms cash flow is the flow of cash in and out of your business.

Managing your cash flow forecast, through being organised and planning ahead, will let you know when hard times are coming.  Get this wrong and it’s quite likely your business will fail.

The saying goes “revenue is vanity, cash flow is sanity, but cash is king.”

Too many companies get caught up in bragging about their turnover figures. They are the fools, unless they are making healthy profits and are managing their cash flow well.

If you can’t pay your suppliers they will stop supplying to you. Then you cannot complete your orders to customers in a timely fashion, so you cannot invoice them, so no money in.

If you cannot pay your employees then, either they will stop working for you, so you will have no one to complete the customer’s orders, or they will take you to a tribunal and it will cost you 1,000s, or both!

Say you are a maintenance company having to pay a number of men to complete various tasks. To complete those tasks you will have to pay out for materials, fuel, and wages, probably before you receive payment from the customer. You have to manage this cash flow issue. The workforce wages have to be paid on time, but you may be able to delay the payments for fuel and materials, until you receive the customer’s funds.

A sound cash flow will also give you an insight into how your customers are paying their debts, and how good your credit control is. You need to be chasing in debts as soon as they become due. Don’t wait until they are 60 days old.

If you run a business that relies heavily on machinery and one of your high yielding machines breaks down, unless you have the funds to pay for the costs of repairs or a replacement, then your business will grind to a halt. However you may have taken out significant insurance policies to cover for such an eventuality. Again the ability to pay for these high insurance premiums will be managed in your cash flow.

If you need to apply for credit or are looking for a bank loan, the financial institutions will probably want a cash flow forecast from you to make sure you are able to make the repayments. A robust cash flow forecast should be part of your financial forecasts, alongside your profit and loss forecasts and budgets.

It is far better to set up a line of credit with your bank while you are trading profitably and your cash flow is healthy. That way when times are hard you can easily have access to the much needed extra cash.

Cash in hand is vital but having knowledge that you have a strong cash flow over the next few months means you are covered for any unseen circumstances that might occur.

Having the extra cash means you can invest in your company’s future growth – buildings, equipment, stocks, research and development. You may have the ability to pay for these items outright or will decide to purchase them over a few years, and it will be dependent on how strong your cash flow is. Having that extra cash means you can be a lot more proactive and strategic.

In my next blog I will explain how to make sure your cash flow remains healthy and show you ways to set up a really simple cash flow forecast that is easy to manage.

If in the meantime you would like help or advice on setting up a cash flow forecast now, then please get in touch. Either call me on 07784 611399 or email me at tina.parker@nozeyparkers.co.uk or visit the website

Tina Parker has been helping businesses increase their efficiencies and productivity for over 25 years. Her aim is to be a “Business Buddy” to SME’s all over the UK. Someone who can ease their burdens and take them and their businesses forward to reach their full potential.