It’s a quiet day at the office. You’re sitting by your desk playing Wordle. When all of a sudden, there’s a loud “bang!” and a flash of light and a wizened prophet appears besides you.
“In November and December 2022,” he croaks, “your business is going to have a surplus of £20,000!” And then he disappears again. Just like that.
Let’s suspend disbelief and assume that you have good reason to believe that this man is the real deal.
What difference would his forecast make to your company?
Perhaps you’ve been thinking about hiring a new HR director, but you just weren’t sure you could afford it. If you knew that – barring any nasty surprises – you’d have £40,000 to spare at the end of the year, it might give you the confidence to go ahead.
Maybe you’ve been thinking about a big new marketing campaign for your new product, but you kept on stalling because you just weren’t sure how much you have to spend. Knowing that you probably have an additional £40K to ‘play with’ can help you focus.
Or perhaps you’ve been having sleepless nights because times seem tough right now. But now you know that better times are just around the corner. It’s such a relief!
The good news is that this “prophet” isn’t entirely fictional. Businesses with good finance functions have one! It’s called a “cash flow forecast”, and it allows you to predict with reasonable accuracy how much money you’ll have coming in and going out of your business over the next few days, weeks and months.
In our previous blogs (here & here) on cash flow, we’ve emphasised that a cash flow forecast is really useful because it can give you advance warning when things are about to go wrong. For example, if you’re likely to be short of money in the next month or two, you can take action now to nip problems in the bud.
But cash flow forecasting isn’t all about averting disaster!
When you understand how much money you’re likely to have in the bank in the future, you can also predict likely surpluses. And that has enormous advantages too. If you know how much working capital you’re going to have, you can make considered, sensible decisions about how to spend it. For example, whether to invest it in the business (and if so, how much), pay off debt, pay yourself more dividends – or even just hang on to it.
And the key is, you can make all those decisions based on real numbers – not your gut feeling. (Wouldn’t that be a weight off your shoulders?)
Although your cash flow forecast does occasionally change – and we update it extremely regularly – it’s the most up-to-date, reliable estimate of what your cash situation is likely to be. Using it when making financial decisions dramatically reduces your risk – and helps you make better choices for your future.
If you don’t get a regular cash flow forecast from your accountant, we can help you.
Cash flow forecasting is part of the programme we offer, to help companies like yours manage your cash more efficiently and smoothly. And not only will we prepare the forecasts for you, but we’ll help you understand the numbers and use them in your decision-making too. Because the numbers aren’t just there as a formality – they’re there to help you!
And we make sure that happens.
If that’s the kind of financial help you’re looking for from your accountant, get in touch with us today.
Call us now on 01730 719 250 or complete this form and one of our team will get back to you to talk about how we can help you.