With uncertainty around inflation and interest rates for the foreseeable future, business owners are rightly worried about the impact that these factors have on their businesses when combined with ongoing supply chain issues and high fuel and energy costs.
It’s understandable to worry about whether your business will shrink or grow, and if you have sufficient cash to trade through the coming weeks and months. While cashflow projections are important to have at the best of times, good cashflow planning can bring a little more certainty and control over the months ahead.
Working out where you are now, where you will be in three months, six months and a year down the line is an essential part of running a successful business – in good times and bad.
Making sure that you have the cash reserves to support your business through difficult times is fundamental to safeguarding your business. And seeing the financial challenge ahead provides clarity compared to operating without an idea of what might come.
Allocating time to look at your cashflow will be particularly pertinent if you have liabilities on the horizon, such as self-assessment tax (due at the end of January 2024) and any ongoing loan repayments.
Identifying the cash flow pinch points, enables you to have meaningful discussions with your debtors, bank and other trading partners. Customers may be in difficulty, but keeping in contact with them and following up through good credit control is important for ensuring cash continues to flow into your business.
There are many software solutions available to help you complete a cashflow projection and enabling you to prepare a basic cashflow at the push of a button.
What can you do?
Firstly, create a cash flow projection:
- Assess revenues and costs for the next 12 months and create a base estimate of trading results.
- Consider any risks in the recovery of current and expected sales invoice and liaise with your customers to gain clarity of the timing of cash inflows.
- Build in other cash requirements, including debt repayments, current and deferred tax payments, and capital expenditure.
Once you have identified any shortfalls in your cash requirements, you should put measures in place to ensure you have the funds you need. You can do this by:
- Accelerating recovery of revenues by improving credit control (dealing more effectively with your invoicing and recovery of funds).
- Having discussions with creditors to schedule payments over a longer period.
- Considering the impact of reduced customer demand on staffing requirements.
- Investigating the availability of government support grants.
- Considering the need for loans/finance
- Approaching HMRC to arrange a longer and scheduled repayment of tax liabilities.