A Short Term [[Cash flow finance|Cash Flow]] is a great but underused tool for managing cash. An annual cash flow forecast typically looks at the cash balance at the end of each month and can overlook cash swings within a month. A short term cash flow forecast looks in more detail, usually every day for the next three months.
It will alert you to any cash shortfalls so you can take early remedial action or if you have a cash surplus you will know you can put it to better use in a high interest bearing account or invest it to grow your business.
Here is how to prepare a simple short term cash flow in five easy steps.
- Start off with a clean spreadsheet. I’ve prepared a template, which you can download here. There are two tabs one to put in income and expenditure and another to show the implied future bank balance.
- Look over your bank statements for the last two months. You should already know which outgoings and customer receipts occur every month but this will ensure you don’t miss anything. Insert all amounts into the spreadsheet. This should include items such as payroll, PAYE, loan repayments, standing orders and direct debits.
- Look at your accounting system to identify additional unpaid invoices. If you use an online system such as Xero or KashFlow this should be really easy. For outgoings use the date you intend to make the payment. Incomings are harder, some customers just won’t pay on time or with any sort of regularity. Be pessimistic!
- Is there anything else that isn’t in your accounting system? VAT and Corporation Tax payments perhaps.
- Enter the your current balance and overdraft limit (if you have one) to set the starting cash position.
How to deal with a cash shortfall
If you identify a looming cash shortfall there are three options:
- Speed up cash receipts – It’s likely that you will already have invoiced customers but are awaiting payment. This is especially the case where your clients are big companies. They always pay up but push the timing of that payment to the extreme. To speed up receipt of the cash you can use a [[working capital finance]] service such as that offered by MarketInvoice.
- Delay cash payments – Stretching outgoing payments to creditors is sometimes an option but beware the damage to future goodwill. Unlike your customers you might not be a huge company that can get away with this sort of behavior with impunity.
- Increase your bank overdraft or loan facility – Talk to your bank as soon as you can for the best chance of a positive outcome, though as we all know getting financing from a bank is currently far more difficult than it should be.
For further assistance in preparing a short term [[Cash flow finance|cash flow]] or help raising short term financing get in touch with Caprica Online Accountants