Get free updates - subscribe to our monthly newsletter Subscribe
Most of us who own and run businesses will be familiar with the term “Cash is King” recognising the importance of being able to pay our staff, suppliers and other financial obligations as they fall due. Keeping a reserve or emergency fund is also advisable.
This is crucial as even profitable businesses can run out of cash if they are expanding and possibly overtrading, or they simply have peaks and troughs in cash flow, for example when quarterly VAT payments or personal/corporate taxes are due.
Many businesses will do some form of cash flow budgeting, however this is often inadequate or done once a year, rather than monitored and updated on a regular basis. Often it is only done because the bank has asked for it.
So why it is important to set out your own cash flow forecasting?
A Cash Flow forecast will help you identify possible occasions during the coming months when your bank balance or overdraft facility may come under some pressure. Your bank or other funders will be impressed if you have identified this well in advance and can present them with up to date accounts and a cash flow forecast that demonstrates a need for additional funding as well as the likely timescale for repayment. They are much more likely to support you, as compared to speaking to them when a short term cash flow emergency hits.
In addition to identifying the timing and magnitude of tax payments, a cash flow forecast may also help you tax plan with confidence, for example if you might be considering capital expenditure or pension contributions before the business or tax year end.
By comparing actual cash flow with what you have projected in your forecasts, it may assist in identifying areas of weakness, for example if your customers are starting to slow down their payments to you, or perhaps your own sales are falling behind budget. A monthly review against cash flow budgets can assist in helping you take remedial action.
You should consider what form of cash flow forecasting works best for you, however it can be a powerful tool in keeping in control of your business finances.
If you like this article and would like our FREE updates sent straight to your inbox then subscribe to our monthly newsletterSubscribe
All content © 2015 Armstrong Watson. All Rights Reserved. Website by Simon Pighills.
Armstrong Watson LLP is a limited liability partnership registered in England and Wales, number OC415608. The registered office is 15 Victoria Place, Carlisle, CA1 1EW where a list of members is kept. Armstrong Watson LLP is regulated by the Institute of Chartered Accountants in England and Wales for a range of investment business activities. Unless otherwise indicated, either expressly or by the context, we use the word “partner” to describe a member of Armstrong Watson LLP or an employee of Armstrong Watson LLP in their capacity as such.
Armstrong Watson Audit Limited is registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Registered as a limited company in England and Wales, number 8800970. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.
Armstrong Watson Financial Planning Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 542122. Registered as a limited company in England and Wales, number 7208672. The registered office is 15 Victoria Place, Carlisle, CA1 1EW. Armstrong Watson Financial Planning & Wealth Management is a trading style of Armstrong Watson Financial Planning Limited.
Armstrong Watson Trustees Limited is a limited company registered in England and Wales, number 84495656. The registered office is 15 Victoria Place, Carlisle, CA1 1EW.