Cash flowManaging cash flow is important in any business and especially in times of uncertainty. While some businesses look no more than 4 weeks ahead, I often prefer a longer term approach with rolling 13 week cash flow forecasts.

Why 13 weeks?

I prefer this approach because it:

  • provides an early warning system. Being aware of potential cash flow problems sooner rather than later makes it far easier to take corrective action. Unexpected cash flow issues are likely to be difficult to resolve and may even lead to insolvency.
  • encourages a sharp weekly focus on the sales pipeline, customer receipts and cash generally and it therefore helps you improve performance.
  • allows you to factor in VAT payments which are often quarterly – which should help avoid nasty shocks!
  • helps you use cash flow to monitor the business. If cash turns out to be below expectations, it can point to an underlying problem. So having a means of working out those expectations will give you the ability to react quickly.

The forecasts are likely to be more accurate in the very short term; moving out there will be less visibility and actual outcomes will differ from the forecasts. However it’s a bit like a sat nav, you start with a best estimate of what lies ahead and once new information is available the situation is reassessed. Having some information about the way forward tends to be far better than having no information at all!

Wrapping Up

A 13 week cash flow forecast can be part of a robust cash management armoury, other elements include informative management accounts, relevant KPIs and longer term forecasting that takes a more strategic approach.

If you would like advice on cash management, then please contact me, David Lewis, on 07836 331677 or e-mail  david@camroseconsulting.co.uk