Managing Cash Flow When Times Are Tough

• CFO Services
• Growing a Business

Many businesses experience periods of cash flow shortage. When times are difficult and cash flow is tight, businesses need to implement cash flow monitoring systems to ensure that they are aware of their upcoming expenditure, predicted receipts and likely hot spots – where cash is negative.

The best way to do this is with a short-term cash flow forecasting system – either a 13-week rolling cash flow or if the situation is critical, a 60-day daily cash flow forecast.

To create your own 13-week rolling cash flow you need to start with two sections – Money In and Money out.

Money In:

Firstly, set out a spreadsheet with 13-weekly columns. Consider your existing trade debtor book and include every debtor in the spreadsheet and indicate which week you expect to receive their payment. Next, add in expected future sales and the week you think you will collect the money. Then finally include any other cash receipts 9asset sales, director loans, tax refunds etc)

Money Out:

Next, predict the money you have to spend. Include an average of your wages in the expected week of payment, add your PAYG Withholding and superannuation payments. Next, take your existing trade creditors and indicate each week that you expect to pay them. Add in your future creditors/expenses (such as rent and direct debits). Finally, add your fixed commitments such as loan repayments, hire purchase payments, drawings and BAS payments.

Once you have updated the above, include a calculation which shows the opening cash balance. Add the Money In and deduct the Money out and the closing balance is the forecast weekly closing cash balance.

If the cash balance in any given week exceeds the cash available, you have to relocate expense payments to future weeks to ensure you are ‘living within your means’.

There are many factors to consider when preparing these forecasts, including solvency, ATO responsibilities, Directors duties etc. We recommend that you give us a call so that we can help you through the process.