The importance of cash flow forecasting during the Covid-19 pandemic

06 April 2020

Financial forecasts aren’t just for large corporations, they are essential for any business, especially in these unprecedented times. If you are worried about your cash position or you’re uncertain of the impact COVID-19 will have on your business then I recommend preparing financial forecasts as soon as possible.

As the saying goes, ‘knowledge is power’, and you and your team need to be equipped with the facts and figures to make vital business decisions quickly and to utilise the available support being introduced by the Government including Coronavirus Business Interruption Loan Scheme (CBILS).

Preparing your cash flow forecast

Have you considered the financial impact of losing clients, delayed payments or other scenarios such as closure of an office? It is useful to gauge whether you need additional funds to support your business, or if you are able to pivot to meet market demands and explore new opportunities.

Your cash flow forecast can be used to test scenarios including the deferral of VAT, the impact of furloughing some or all employees, if a loan is required, how much is needed, and how repayments would work.

In normal circumstances, you would review the previous year’s figures to create your sales and profit and loss forecasts, which would provide the information needed to see your cash flow trends and variations. With the current environment, more flexibility and assumptions are required.

Cash flow recommendations:

  • we recommend starting with a 13 week rolling cash flow which is updated on a weekly basis. This will ensure you always have visibility of your cash requirements for the quarter ahead to allow for plans to change as needed
  • use specific calculations and base all incomings and outgoings on realistic assumptions that can be changed to update the forecasts as needed
  • having real time financial information readily available can really help you quickly assess your cash position and calculate realistic projections
  • communication is key with customers and suppliers to know when you’re likely to receive payments from your customers and when you will need to pay your suppliers. Some businesses are working together with their customers and suppliers to work out payment plans so it’s a win for all parties. You may also need to allocate more resources to collecting debts in order to survive in the coming months.

Scenario testing considerations:

  • Furloughing staff: The Coronavirus Job Retention Scheme (CJRS) is a government grant that reimburses employers 80% of a ‘furloughed’ employee’s salary at a cap of £2,500 per month. When considering this, make sure you reflect this in your cash flow forecast as there may be a time lag between paying furloughed staff members and receiving the grant from the government.
  • VAT: ensure you calculate VAT as part of your workings and if you are deferring the next VAT payment, don’t include it as a payment in your cash flow. VAT payments due between 20 March and 30 June 2020 can be deferred, this essentially means payments associated with VAT returns for quarters ending 29/02/20, 31/03/20 and 30/04/20 can be paid by the end of the 2020/2021 tax year.
  • Suppliers: Key suppliers will need to be prioritised, and you will need to decide which payments are essential. Remember communication will be vital, especially when making arrangements such as these.
  • CBILS: if you are seeking the Coronavirus Business Interruption Loan Scheme, use all of the above scenarios to help determine the size of the loan required, your ability to repay the loan in the future, along with the loan period needed. You may also wish to consider how best to use the loan to ensure long term survival.

There is more information about all of these scenarios and the available support from the Government in our COVID-19 Assistance booklet.

You are not alone

Once you understand your cash flow position, there is various additional options that could provide extra support in the coming weeks and months.

CBIL support

We can help you raise finance through your current bank and/or alternative lenders, leaving you to continue to run your business during these unprecedented times. We have access to participating CBILS lenders and can make one online application through our online portal. We will liaise with potential lenders and, providing you meet the qualifying criteria, arrange funding on your behalf. If you would like to discuss your funding needs please contact Stuart Hutchison on 07590 440 643 or email s.hutchison@uhy-uk.com.

Outsourcing and training

Saving costs will allow many businesses to survive through these uncertain times. It may be that you need to furlough your staff but still need a little extra help. By outsourcing your finance function or outsourcing an FD role, you could gain the expert guidance you require at a lower cost for the short term.

Of course, we can support you with cash flow forecasting and scenario planning, but you may want to keep this in house. We offer online training on Xero and related apps (including cash flow forecasting) which will allow you to get ahead. If you would like to know what resources are available and how we can help you, please contact Emily Deakin on 01462 687333 or email e.deakin@uhy-uk.com.

More information

In the coming weeks, we’ll be producing more content which we believe will be useful for you and your business. We urge you to pick up the phone and talk to us, we are here to support and guide you through these extraordinary times.

In the meantime you can watch our webinars ‘ACT NOW – Business Resilience and Future Prosperity’ and ‘ Reshaping your business for survival and future prosperity: Avoiding the pitfalls and taking action now’  to delve into our tips & advice in much more detail and provide guidance on business survival. If you’d like to receive an invite to future webinars and further guidance around COVID-19, then please sign up for our guidance updates.

Watch our cash flow forecasting video for more information on the apps available to you as well as useful tips and the next steps to take.