As businesses look to rebuild and recover from the trading challenges of COVID-19 in the coming weeks and months it is vitally important that they manage and maintain good cash flow to ensure they remain viable and can trade.
To manage cash flow effectively, businesses need to be able to forecast how they will perform. A well-prepared forecast can help to:
- Predict sales performance
- Estimate cost and spend expectations
- Indicate when cash will come into and leave a business
Armed with this information, a business will be able to make important decisions in the knowledge that it can react effectively.
As a minimum, a business should look to compile a 30, 60 and 90-day cash flow forecast, but longer forecasts can also be useful up to a point.
Be aware that long-range forecasts may be less accurate as they will not be able to take into consideration future changes to business rules or the economy.
Preparing a forecast
The first element should be a sales forecast. This is the starting point of a profit and loss forecast, which can then be used to create a comprehensive cash flow forecast.
A sales forecast will include an estimate of how much you expect to sell in the future, normally broken down by month.
To create these estimates, you should look at your previous year’s sales figures to see whether there are any trends or seasonal variations.
You also need to take into consideration the introduction of new products or services and the expected market for these.
Additionally, if you plan to make more sales in a particular area, build that into your forecast. This should include any new contracts or retained work that is anticipated during this period.
At this stage, do not include any tax on the products or services sold as this will be incorporated later into the cash flow forecast.
The next stage, a profit and loss forecast, combines your business’s income and its costs to give you a projected profit figure for the future. By preparing this you should be able to:
- Estimate how much tax the business will be liable for
- Understand the costs of launching new products
- Gain an indication of loss-leading products and/or the first indications of negative cash flow.
Be sure to include costs in the month that you incur them, rather than the month that you pay for them.
All cash flow forecasts are prepared based on payment dates, but a profit and loss forecast must be prepared based on when you incur your costs.
At this stage, you can estimate and include VAT costs into the forecast. However, large one-off costs should not be included until the final cash flow forecast.
Using the information gathered so far you should now be able to build up an idea of cash flow within the business and prepare an accurate cash flow forecast that takes into consideration sales, profit and costs.
Drawing up these forecasts for your business needn’t take long, but it doesn’t hurt to seek professional assistance to ensure that forecasts are accurate and so that you have the advice to act on the information you receive.
With the advent of the latest cloud accounting technology, it has never been easier to effectively and accurately forecast cash flow.
- Government extends childcare funding for families affected by the pandemic
- Green Homes Grant guidance published
- Eat Out to Help Out opens for claims
- Key dates for Coronavirus support schemes
- Eat out to help out
- New legislation introduced to protect redundancy pay of furloughed workers
- Seven tips to get start-ups off the ground
- Government confirms Coronavirus tax concessions in amended Finance Bill
- Future Fund expanded to more businesses
- Research finds lack of knowledge, information and skills are key barriers to Making Tax Digital compliance
- New corporate insolvency rules come into effect
- £84 billion of R&D tax credits unclaimed – Could you be eligible for a share of this funding?
- Government confirms Job Retention Bonus of £1,000
- Upcoming key dates for the Coronavirus Job Retention Scheme
- Paying for COVID-19: Government begins exploring tax take back
- Government confirms the next steps for the digitisation of taxation
- Government publishes detailed guidance on SDLT holiday
- HM Revenue & Customs confirms first arrest in connection with furlough fraud
- Reminder: Deferral of second payment on account
- HM Revenue & HM Revenue & Customs updates Self-Employment Income Support Scheme guidanceCustoms updates Self-Employment Income Support Scheme guidance
- Coronavirus apprenticeships guidance updated
- Download our updated Coronavirus Support grids
- Details of ‘Eat Out to Help Out’ scheme confirmed
- Guidance on hospitality and tourism VAT cut published
- Summer Economic Update
- Don’t forget to make an SEISS claim by 13 July!
- HMRC offers clarity on usual hours calculation for flexible furlough
- Coronavirus grants to businesses, employers and individuals are taxable
- Guidance published on repaying Coronavirus Job Retention Scheme overpayments
- Key dates for Coronavirus support schemes
- Government publishes new ‘Covid Secure’ guidance
- Remember to reinstate your VAT direct debit in time for your next payment
- HM Revenue & Customs clarifies repayments of Corporation Tax and anticipated losses
- Employers given 30 days to confess to furlough fraud
- RE OPENING…GET ON YOUR BLOCKS!
- Download our Coronavirus support for business timeline
- Managing Cash
- Helpful steps to improve credit control
- Top tips for improving profit
- Are you taking your business online? – Six steps to effective pricing
- HM Revenue & Customs publishes detailed guidance on calculating furlough claims from July onwards
- Further clarification issued on eligibility for second round of Self-Employment Income Support Scheme
- Government delays VAT Reverse Charge
- VAT deferral refund available
- Trade Credit Insurance backed by £10 billion guarantee
- Guidance on exceptional circumstances for higher rate SDLT refunds updated
- Whistleblowers make almost 2,000 allegations of furlough fraud
- Employees returning from parental leave continue to be eligible for furlough scheme
- Chancellor unveils changes to furlough scheme
- Self-Employment Income Support Scheme (SEISS) extended
- Coronavirus Future Fund opens to applications
- Coronavirus Statutory Sick Pay Rebate Scheme set to open for claims
- Maximum Government-backed loan amount for larger businesses increased to £200 million
- Temporary tax freeze on home office expenditure announced
- Tax treatment of expenses and benefits during COVID-19
- Money laundering supervision payment deferrals and deregistration announced by HM Revenue & Customs
- Changes to notifying an option to tax (VAT) on land and buildings during the Coronavirus pandemic
- COVID-19 – Re-build and recover – we’re here to help you get back on track
- New start-ups
- Owner Managed and Family Businesses
- Cashflow projections and budget assistance
- Tax payment plans
- R&D Tax Credits
- Dividend Tax Planning
- Inheritance Tax
- Business Advisory Services
- Contracts & Agreements
- Assistance with business plans and pricing reviews
- Payroll & HR advice
- Practical Employment Law Considerations For Returning to Work
- Employment contracts – changes to package and benefits
- Furlough – continuation and return to work
- Business Finance
- Loans and other methods of finance
- Property Owners
- COVID-19 – An assessment of safe working arrangements
- Coronavirus Job Retention Scheme (CJRS) extended until October
- “Covid Secure” practical workplace guidance for employers
- Get ready to claim the Self-Employment Income Support Scheme (SEISS)
- Eligibility for grant funding
- Government reduces the penalty for Lifetime ISA withdrawals
- Bounce Back Loan scheme is now live – apply today
- Deferring your VAT payment
- Bounce Back Loans scheme for small businesses
- Businesses bombarded by cyber-attacks as they seek support for COVID-19
- Child Benefit and the High-Income Child Benefit Charge during the coronavirus outbreak
- Coronavirus Statutory Sick Pay Rebate Scheme
- Coronavirus Customs Authorisations
- Are you or your team classed as essential workers?
- Payment of dividends during the Coronavirus outbreak
- Certain sectors see access to the Coronavirus Job Retention Scheme restricted
- Are you eligible for the Self-Employment Income Support Scheme (SEISS)?
- I’m a director of a small company – what support is open to me during the Coronavirus outbreak?
- Government launches Business Support Finder tool
- Government announces Future Fund for fast-growing businesses
- Administering the Coronavirus Job Retention Scheme
- Coronavirus Job Retention Scheme online portal launches
- Statutory Residence Test changed to allow skilled workers from around the world to assist the UK’s Coronavirus response
- Government SEISS guidance updated
- Coronavirus Job Retention Scheme extended to end of June