Forecasting your cash when there are so many uncertainties

Cash is king - have you got a plan?

Having a plan for your cash flow is vital to ensuring your business succeeds. But how do you forecast your cash when there are so many uncertainties?


Jun 04, 2020



Why it is important to have a cash flow plan

Knowing what cash you've got coming in, and what cash you've got going out at any time is incredibly important. And it's even more important when working through uncertain times, like COVID-19. Having a cash flow forecast that is 100% accurate will be nearly impossible at the moment, but the value of a cash flow forecast comes from the process you go through to put it together, where you're educating yourself on your businesses cash situation. As a business owner, you will always be looking ahead to what decisions and actions you need to be taking, but by having a clear understanding of what cash impacts those decisions and actions have, may change your business direction.


Work with your businesses 'levers'

Levers are measures that you can put pull in your business to make a change. They are areas in your business you can control and are often activities or actions which then impact your financials. They might help you grow your revenue and margins, and they might help you reduce costs. Sitting down and putting together a list, or a spreadsheet, of each possible lever that you have in your business, means that you have clarity on your options, if the need for more cash came up. Within that list you should also be working out the basic cash flow against each option, which would reveal what the impact on cash would be, and any other considerations like time to execute that lever.

Some examples of levers to help grow your revenue and margins could be looking at the number of products you can sell each day, or how many bookings you can take, which menu items can you offer etc. Some examples of levers to help reduce your costs could be getting a rent reduction on your premises (or leaving your premises completely), having a conversation with your suppliers on their products, costs, and payments associated with that, utilising the Government tax changes and wage subsidies, or maybe reducing staff hours. Keeping in mind of coarse that anything staff related will need to go through an HR process, which could take some time.


Scenario analysis

Trying to work through an uncertain time in your business with just one cash flow scenario mapped out, will make it very difficult to predict an accurate outcome. Look at the best case, worst case, and the most likely scenario and map out what each would likely result in. If you've got three scenarios mapped out with the cash outcomes and business situation for each, you'll then be in the best position to make decisions moving forward as you will know what cash you've got to work with. It's a really good idea to have other decision makers from your business with you when doing this analysis, so you can cover being conservative and being optimistic in those scenarios.


Get some clarity and monitor

It should all start with your profit and loss statement, you can download a spreadsheet of this from your Xero account. From there, it's a matter of working out a basic budget with sales vs. cost, and then add in anything else you need to account for and include those things.

Once you've got a basic cash flow forecast drawn up, with a couple of alternative scenarios alongside it, you will need to keep monitoring it. That might be every week, or even every day at the moment. As we're (hopefully!) coming out the other side of COVID-19 as a nation, there are still a lot of unknowns moving forward. People's spending habits, working habits, and business habits may have changed, so keeping an eye on where you are within your planned forecast will be necessary. You may need to look at pulling a lever earlier than expected - or maybe not at all.


The exercise of putting together a cash flow forecast doesn't need to be perfect, try not to get caught up in trying to make it that. The simple act of thinking about your cash, your expenses, and predicting revenue will benefit you and your business. And don't forget you don't have to do this alone, we have business advisors across the country that can set you up with a clear plan and help keep you on track.

Latest Articles

Your Business' Financial Function - Outsourced or In House?

Your Business' Financial Function - Outsourced or In House?

Unsure whether to hire an in-house accountant or outsource financial services? Our article explores key considerations for managing your fi...

Important bookkeeping practices all New Zealand businesses should follow

Important bookkeeping practices all New Zealand businesses should follow

Struggling to keep your financial admin in check? We get it. Bookkeeping might not be the most glamorous task, but it's undeniably crucial ...

Building business stability through uncertainty

Building business stability through uncertainty

Prepare your business for economic ebbs and flows with our latest blog. Learn why it's essential to plan for lean times and how to stay afl...