January 2024

Contract Taking Account Talk
CASH FLOW WOES?
Simon Jarman, CEO of Clever Bean Accounting, discusses the importance
of regular cash flow forecasting in the window and door industry.
Italk to businesses in this sector every day
and there is one recurring issue that affects
almost everyone, regardless of size, whether
they are thriving or struggling. Unfortunately, too
many window and door businesses suffer from a
lack of cash and too many owners don’t have a
sufficiently tight control of the situation.
Bank balances are typically checked every day
and there is generally a view as to whether
outgoings can be covered in the upcoming week
or so, but there is little grasp of anything beyond
that. As a result, it comes as a surprise when
a significant VAT or tax bill falls due and there
aren’t sufficient funds in place.
Cash flow is the lifeblood of any business, and it’s
often the difference between success and failure.
Even if your profit and loss account looks healthy,
the inability to pay staff or creditors can quickly
derail you. A profitable business can still fail if it
runs out of cash.
Healthy to critical
And situations can change very quickly. It
only takes a few late-paying customers, some
unexpected expenses, or a seasonal fluctuation
in demand to rapidly turn a healthy outlook into
a critical one. I’ve seen this happen first-hand
in just the last week. And small businesses tend
to feel this pain most as they often don’t have a
cash buffer to weather short term challenges.
The solution is to introduce a robust system of
cash flow forecasting. This allows businesses to
remain agile, foreseeing potential pinch points
well in advance, providing the time needed to
make necessary adjustments and effectively
manage cash flow.
Regular cash flow forecasting allows businesses
to improve financial decision-making. With a
clear understanding of your future cash position
you can make informed decisions regarding
investments, expenses, and growth opportunities.
It can lead to better relationships with
stakeholders who often require insight into your
cash flow. Accurate forecasts demonstrate your
commitment to financial transparency, which can
help build trust. And it can provide peace of mind.
Knowing that you are in control of your cash flow
can reduce stress and uncertainty, allowing you
to focus on growing your business.
My recommendation to every business, regardless
of size, is to prepare two key cash flow forecasts
on at least a monthly basis:
Simon Jarman
“Cash flow is often the
difference between
success and failure”
1. A 13-Week Receipts and Payments
Forecast: This detailed forecast examines
every anticipated incoming and outgoing
cash item over a three-month period.
Preparing this forecast requires some
effort and a comprehensive knowledge of
your business, including factors such as
expected customer payments, order book
conversion into sales, supplier payments,
HMRC obligations, payroll expenses,
financing costs, capital expenditure, and
other one-off costs. Typically, this forecast
aims to predict the closing cash balance
at the end of each week during the 13-
week period, but in extremely tight cash
situations, it may be beneficial to forecast
the cash balance daily. This is a significant
effort, but sometimes essential.
2. A Medium-Term Forecast: Spanning six-
12 months, this forecast predicts monthend
cash balances based on budgeted or
latest estimate revenue, costs and profits.
It considers expected changes in working
capital, capex, financing costs, tax, and
other relevant factors.
Hands-on approach
If your business enjoys a healthy cash position
and can tolerate some cash fluctuation, there are
some great software tools available that leverage
your historic cash data alongside your budget
to project your cash position with minimum
effort. However, if your business struggles with
cash flow, I strongly advocate adopting a more
hands-on approach using a spreadsheet. This
method generally offers a much higher degree of
accuracy.
In conclusion, cash flow forecasting is an
essential tool for all business owners. It provides
a clear understanding of your cash position, helps
plan for the future, and significantly enhances the
ability to weather financial storms.
Contact Clever Bean Accounting:
www.cleverbeanaccounting.co.uk
Email: simon@cleverbeanaccounting.co.uk
44 T I JANUARY 2024 PRACTICAL CONTENT FOR THE GLAZING INSTALLER & HOME IMPROVEMENT SPECIALIST