The Business Doctor: Cash flow

Take control of your cash flow to ride out the Coronavirus shockwave

How can you be confident you’re making the right choices now when you don’t know what lies ahead? By making sure you put up-to-date and accurate information at the heart of your decision-making processes.

Get your forecasting right

If you haven’t in the past 12 months reviewed your financial model and the assumptions driving your forecasts, you could be working off the wrong information. After all, Coronavirus restrictions have shifted market conditions for many – your model may need to adapt too.

But that’s not all. In the current climate, it’s vital that your model allows you to quickly run regular updates and see the impact of changes as they happen. If reforecasting is slow or unreliable, you may need a more fundamental rework of your model.

You’ll need to act quickly if your modelling shows that cash flow is going to be an issue. Put together 13-week cashflow forecasts for the best, most likely and worst-case scenarios and use them to identify potential problems and capabilities early enough to take action.

Manage any government support

If you’ve taken Coronavirus loans, deferred VAT or got staff on furlough, you’ll need to think about what repayments or an increased wage bill will do to your cash flow. And if you’ve got surplus cash, are you better off keeping the security it brings for a bit longer? Knowing all your options and their impacts is crucial, as is addressing issues sooner rather than later.

Don’t forget to build in some flexibility to whatever you decide. Economic certainty will not return overnight. So you’ll want the leeway to deal with unexpected challenges without running out of cash, while allowing you to take opportunities when conditions improve.

Know what’s going on for your clients and customers

Talk to your clients and customers to find out how they’ve been impacted. Be prepared to share details of how things are for you. Knowing if you’ll have to wait longer for payments can help you plan and prioritise.

These conversations should help you build a picture of your business ecosystem and where the risks and opportunities are. It’s time and effort well spent. Any insight you gain can feed back into your modelling and improve the reliability of your forecasts.

For greater certainty and security, there are services that flag businesses that are known to have missed payments or who are at risk of collapse. When margins are tight, knowing whether to give or extend credit can determine the survival of your own business.

It’s all about your information and forecasts

But how do you know if yours are up to the task?

Don’t be afraid to question the assumptions your financial model is built on or the reliability of its outputs. Seek out the best market intelligence you can lay your hands on. And if you’re still not sure, get a second opinion.