image explaining the cash flow process

What does the future hold – cash flow forecasting is king?

Why is cash flow forecasting so important at the moment? It’s mid May and SME’s are slowly adjusting to the new world order. CBILS loans have been around for a while and many businesses have tried to access funding through this scheme. Some have managed it, some haven’t. 

For others, the Bounce Back loans have provided much needed funding – for many, application was quick and simple and up to £50k landed in the company bank accounts within a few days. 

Cash flow forecasting is key

Quite a few businesses find themselves in a place that they haven’t been before. With cash/reduced borrowings and no immediate need to spend. The key here is having a plan. ‘Normal’ is unlikely to resume for a while. Many businesses have deferred creditor payments over the last 8 weeks but haven’t thought about how these will be caught up. Some HMRC payments have been deferred to next year. 

The key point is that all businesses need to have a working cash flow model to see how their business is going to unfold over the remainder of 2020 and into 2021. Linking together trading receipts, creditor payments, HMRC payments, loan payments, director drawings and ensuring there is still sufficient working capital in the business to continue trading. 

Credit ratings will change

The other challenge that is credit ratings will soon start changing as the rating agencies implement revised scorecards to reflect the changing economic climate.

It is highly assuring that all businesses will suffer a ratings cut. This will start to challenge the working capital cycle as suppliers shorten credit terms which will bring some cash flow pressure to the business. At the same time, debtor payments may extend.


Whilst it is tempting to use the CBILS/Bounce Back loans to deal with these issues, is that the right use for this money?

Having an understanding of the cash flow cycle and being able to model scenarios helps businesses understand their cash flow needs. It isn’t about profit right now, cash is the key driver in the current economic environment. 

If you would like to discuss these issue further we can help by providing assistance and mentoring in these circumstances to give your business the best chance of survival. 

Author of cash flow forecasting is king

Richard Mason of Ludgate Finance wrote this article. Richard explains, “following a move to an advisory role in 2007, it became clear that SME’s were struggling to be serviced by the banks. Alternative finance sources were required. With the advent of peer to peer lending, I sourced and completed over 200 deals. I raised in excess of £30 million to support SME’s in their growth and acquisition ambitions.”

Would you like to chat something over with us…

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