So, we’ve now spent a good couple of months in Coronavirus UK, and the various human and financial tolls are mounting up. Sadly, it’s not a pretty picture with the terrible effects of the virus being writ large every day.
More encouraging on the commercial side, there has been some useful interventions from the government. The furlough scheme is now live, the banks shamed into offering CBILs loans, and business rates grants have started to land.
A good majority of the self-employed now have a lifeline with payments expected in June. Now that lockdown is the new normal, and the COVID-19 ball is rolling fast, I hope everyone has applied for the help they’re due and has found some level of stability.
But there’s still work to do. We need to talk about cash flow.
What’s Cash Flow?
If you read my Float blog, you’ll know I explained cash flow as ‘the ebbs and flows of cash in a business that affect its ongoing liquidity’. In short, cash flow management ensures there’s enough money for a firm to continue trading and to pay bills, staff, suppliers, VAT etc.
In the pre-COVID world, I tried to stress that cash flow is a vital skill for any business that wants to remain viable. Today that message takes on extra resonance. For firms struggling with the impact of COVID-19 cash, flow planning could be critical to ensuring your business can outlast the crisis.
Cash Flow Planning
In many ways, cash flow is pretty simple. All you’re doing is comparing all the money your business will payout against the amount of cash you expect to flow back. The result will tell you how well you’re managing your liquid assets and how long you can survive if you carry on regardless.
Things that can affect your cash flow will be areas like stock control, petty cash management, your terms of business and processes like invoicing, credit control and asset financing.
The central theme running through all this is ensuring you have an ongoing and hawk-like control over all aspects of the cash in your business captured in a dynamic cash flow plan. Have a look at this manual cash flow sheet, and you’ll get the idea.
Happily, modern accounting technology like Xero makes cash flow planning much more straightforward and considerably easier to develop.
As bad as not having a cash flow plan is to see it as a fixed process. By undertaking scenario planning, a business can create amended cash flows that are useful when navigating the choppy waters we’re experiencing now.
By analysing how the cash is flowing in your business, we can draw up alternative situations that show the impact of loan capital, cost-cutting, calling in debt and running down your stock.
Look closely, and you’ll see most of the government’s help is all about securing a firm’s cash flow until normal service resumes. Cutting wage and rates bills, delaying tax payments and providing loan finance are all ways for a business to develop a very different cash flow than the one that presented when the harmful impacts of Coronavirus became clear.
If you would like an excel cash flow template, please download here: Cashflow Template