Why is cashflow more important than ever?

Against a backdrop of rising living costs, rising inflation and rising interest rates, cashflow is becoming an increasingly serious matter for individuals and businesses alike.  With the Bank of England warning the UK will fall into recession by the end of the year and covid loan repayments due, businesses are under growing pressure, but steps can be taken to reduce this and that is why we encourage our clients to monitor their cashflow carefully. 

Cashflow forecasting takes away any guess work and puts you in greater control of your spending and ability to make informed decisions.  Technology means that it is now easier than ever before to keep track of spending, identify trends and make plans. 

Cashflow forecasting helps you to plan for every possibility. Hope for the best, plan for the worst and be prepared for everything in between. 

Safeguard your Business

Your cashflow will fluctuate from one month to the next and by identifying when your peaks and troughs occur you can plan appropriately and take necessary precautions.  

For example, if you expect sales to slow during the winter months, limit your spending during this time and plan for your higher costs to be incurred in the months where you expect cashflow to be better.  

Regardless of how thorough your forecasting is, there will be times it doesn’t go to plan; income may be less than expected and unexpected costs may arise. For many, the rising cost of energy has come as an unwelcome surprise and one that cannot be ignored. Whilst this is out of your control, the benefit of forecasting means you are more equipped than you would have been without it. 

Successful businesses don’t succeed purely on the basis that they have a great service or product offering, they succeed because they are always ready for what is coming. 

You can safeguard your business from unexpected costs taking some simple steps:

  • Monitor your cashflow regularly so you can identify changes; a cashflow forecast is ever evolving and can quickly outdate.
  • Ensure you leave sufficient in reserves to cover unexpected costs; set up a separate account to cover emergencies.
  • Plan your spending; if you know you are going to have replace equipment, recruit, etc., plan this expenditure to fall in line with your peaks

Sense-Check Business Decisions

With growth, comes investment, which typically costs money.  Your cashflow forecast can help you to determine whether a business idea is financially viable whilst also measuring the impact of the idea, should you decide to go ahead with it. 

For example, you may think that in 12 months’ time you will be able to expand your team or open another premises but when you input the costs associated with either of these ideas into your cashflow forecast it may be achievable sooner.  With effective forecasting in place, you will be able to plan and implement change when the time is right. 

You can easily sense-check your ideas and determine the following:

  • When and where to invest 
  • How to allocate resource 
  • What steps to take to achieve your plans

Gone are the days of accounting focusing on the past and what has happened. A viable business needs reliable cashflow and infrastructure in place to monitor what is happening in real-time and ahead. Looking back at historical data is no longer enough. 

Growing and aspiring businesses are fundamental to the UK economy, now more than ever. At Focal Business Group we can help businesses and their owners to get a grip of their cashflow, regain control of their finances and get their business goals back on track. 

Get more from your accountant; as business accountants, analysts and advisors, we help you understand and manage your numbers to drive plans and decision making. If you would like to discuss the ways we can help you and your business, simply call 0800 112 0880 or email [email protected].

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