Cash Flow Forecasting: Why It’s Important During a Pandemic

During the ongoing COVID-19 pandemic, many industries are seeing income either disappear completely or drop to dangerous levels. To be able to navigate the future path of your cashflow, it’s vital you map out your financial position over the coming months so that you can take the appropriate action to safeguard your cash position.

Forecasting your future cash pipeline

Projecting your cashflow pipeline forwards during a crisis is vital. Having access to a detailed forecast can help you to scenario-plan, search for cost-savings and look for ways to preserve your cashflow position.

Remaining in control of the cash coming into (and going out of) your business is the real focus, so you can accurately predict your financial position and resolve any issues before they occur.

Key ways to enhance your forecasting

  • Run regular forecasts – The financial landscape is presently changing on a daily basis. A cashflow forecast is not a document that remains static. Variables and external drivers change daily, so it’s vital that you run frequent forecasts and react swiftly to any projected cash issues as they become apparent.

  • Use the latest cashflow forecasting apps – cashflow forecasting apps, like Fluidly, Float, or Futrli, integrate with your Xero accounts, giving a drilled-down view of how your cash inflows and outflows will pan out over the coming months – information that will inform and justify the decisions you make during these extremely challenging times.

  • Explore the right revenue streams – many small businesses have seen in person sales drop to absolute zero since quarantine restrictions came into place. To overcome this, there’s a real imperative to explore revenue streams and new opportunities for income. Are you able to pivot your business? For example, are you a coffee shop that now sells roasted beans online? We suggest getting creative and finding ways to increase your earnings to balance out your unavoidable expenses.

  • Get proactive with cost-cutting – if you can reduce cash outflows to a minimum, that will have a real impact on the health of your future cashflow. Pare back your operations and aim to reduce things like unnecessary software subscriptions, or over-ordering of basic supplies. Negotiating cheaper rates with suppliers, if possible, may also help.

  • Review your staffing needs – now’s not the time to make anyone redundant, but you can look at ways to reduce the costs of staffing and resourcing. Reducing working hours or redeploying staff in different roles are all options that reduce payroll costs, while also looking after your staff’s welfare.

  • Run a variety of scenarios – changing the financial drivers in your forecast model allows you to scenario-plan different strategies and options. Many of these will be in a long-term plan when restrictions ease. Scenario-planning lets you answer questions and will give you some hard evidence on which to base your decision-making and strategic outlook over the coming months.

  • Look at various ways to access funding – if forecasts show a giant cashflow hole coming up, you’re going to need additional funding to get through this crisis. We can assist your business to investigate funding opportunities from grants, banks and loan providers (we offer lending services and have a dedicated lending specialist at Judge Accountants).

Forecasting is an important step in providing you with the knowledge and confidence to make strategic business decisions and will ultimately lead you on your path to success.

Chat with us today about setting up budgeting and cash flow forecasting for your business – book a meeting with one of our accountants for expert advice.