Understanding your Cash Position

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If the global pandemic has taught us one thing, it is the importance of cash. Yes, turnover and profits are important but knowing what your cash position is helps drive decision making and can be the difference between whether you survive a crisis or not.

Use a Short term Cashflow Forecast

Using a rolling 13 week cashflow forecast will help you to understand the impact of any potential disruption on your business. Many businesses will have started to focus on cash as turnover reduced due to the Covid-19 pandemic, however if you have not yet started to prepare your cash flow forecast, please get in touch and we can provide you with a template.

Once you have set up your cashflow forecast, add in the expected payments from customers and the supplier payments that will be due during the period.  Monitoring cash receipts with a short term cash flow forecast will help you to establish the cash requirements over the next few weeks. If you have spoken to customers to ask them about paying existing invoices and placing new orders, updating the forecast will ensure that you have a more accurate picture of the cash position.

Use forecasts as a decision-making tool

Understanding your cash position in the short and medium-term will help you to assess what steps you will need to take in order to keep your business moving. Devising forecasts with different scenarios will help you understand what your options might be.

Consider the impact of any delays in the supply chain

There may be delays in obtaining goods as the UK gets used to new procedures for importing and exporting. This may have an impact on your supply chain, which may then impact on your ability to complete your work in progress as efficiently as you have done previously. Any delays in the working capital cycle will impact directly on your cash position, as inventory will take longer to turn into completed goods, which will then take longer to be invoiced and paid. Factor in any potential delays into your cashflow so that you can ascertain where the pinch points are likely to be – forewarned is forearmed.

Start to look at the longer term position

Starting to prepare a longer-term cash flow forecast will help you to understand what additional funding requirements you may need, and in what form. Consider the impact of any deferred payments that you have, including VAT and tax liabilities and make sure any payment holidays and their subsequent repayments are included in the projections. Also consider whether you anticipate any slowing in demand for your services or things taking longer to complete and review the longer term forecast to see how that impacts on the cash position.

Review your debt obligations

Many businesses have taken out additional borrowing over the last few months, through Government-backed schemes. If your cashflow forecasts are showing that there may be pinch points, then reviewing your borrowings and seeking advice as to whether you might need to adjust your debt obligations would be a worthwhile step to take.

Cash collection should remain a key focus

Having an effective credit control process in place will be key to making sure that debtors remain at a reasonable level. If your customers are likely to be adversely impacted by Brexit, then knowing that in advance will help you plan your cash position more effectively. Speaking with customers to obtain promised payment dates will help you to keep on top of cash collection.

In summary

The delays to the supply chain and general uncertainty will likely have an impact of most business’ cash position, regardless of whether they import or not. Monitoring your cash position and looking forward will help you to ascertain whether you need additional support, either in managing your cash or in reviewing your working capital requirements.