Covid 19 – Cashflow Measures (Part 2)


In an earlier post we looked at some tips for helping your business survive the Covid-19 crisis, one of which was maintaining accurate real time financial figures and USING THEM.

The crucial point with a cashflow forecast is that financial numbers can be so much more than a backward-looking record of your business, they can also predict where you are likely to find yourself in the short, medium and even long-term.  There are 3 key benefits to preparing a financial forecast:

  1. Done well they provide you with a vital source of information to make decisions: can my business survive this crisis as is, or do I need to make cuts, can I (indeed should I) seek other sources of funds (introduction of personal finances, bank loan, etc), and much more as well.
  2. They provide information you can offer to other interested parties: you can share this with your staff if appropriate, you can share this with your bank or other lenders, you can use this information to support claims for the various Government subsidies available.
  3. They provide you with some certainty, freeing you up to focus on other issues. Remember a financial forecast is just a bunch of numbers, real decisions need to be implemented in the real world to make them come about.  But if you are lying awake at night worrying about whether your business will survive you are unlikely to be making the best possible operational decisions to maximise the chances that happening (believe me, I speak from experience!)  Armed with good forecasts you can use them to make better decisions.

Let’s start with 3 tools for preparing a financial forecast.

  1. Calxa, which is a software app specifically designed for this purpose, it is an add on for Xero, QBO & MYOB. We have included a recording of a webinar outlining both how to prepare a cashflow forecast and how to do this using Calxa.
  2. A simpler add on app such as Float. Whilst float does not have the depth of features of Calxa it is free (an important consideration if you are trying to minimise outgoings), and it is easier to use.  If this app will meet your needs it is a good place to start.
  3. Excel – for those of you who prefer to use a tool you already know Excel is a quick and easy way to put together a basic cashflow forecast. We have prepared a spreadsheet to enable you to prepare a forecast for your business.  It incorporates both some assumptions you enter – how much will I collect from my customers, how much will I pay my suppliers and employees and so on – and some tools for estimating what you will be eligible to receive from the various Government stimulus packages.

Now let’s look at 3 key forecasting tips.

  1. Forecasting Cashflow from “operations” – that just means what you do day to day. This will include sales to customers, purchase from suppliers, payroll and so on.  You will need to forecast when each of these will happen in terms of cash in / cash out – not when you get the order, or invoice the customer, but when they pay you.  The same with suppliers. For a smaller business this is relatively easy, for larger companies it gets progressively harder – many of you are likely to need a tool such as Calxa to do this, and to have confidence that it has been done well.
  2. Cashflow from balance sheet movements – this sounds complicated, but it really isn’t. It just means when you pay liabilities such as GST or PAYG, when you pay Super, whether you can improve your cash balance by reducing other assets or increasing liabilities, and so on.  Examples of this can include getting paid by customers sooner, delaying payments to suppliers or to the ATO, not going ahead with an asset purchase and so on.
  3. Cashflow from the business owner – those of us who own a business may be considering injecting our own funds into the business to keep it afloat. But is that a good idea?  What if you put all your savings in and the business goes under anyway?  This is where you need a model, to project your monthly cash balance, to maximise your chances of making good decisions.

Each of the linked videos and downloadable resources provide the tools you will need to create a cashflow forecast. Pick the one that is best suited to your business.  But please, please do this – if you do not it will significantly reduce the chances of your business surviving.  If you need any help doing this please contact Viridity – we would be delighted to help.

Enter your details to access the cashflow forecast template.

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