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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 <strong>2024</strong> PRACTICAL CONTENT FOR THE GLAZING INSTALLER & HOME IMPROVEMENT SPECIALIST
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January 2024

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