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Reduce panic levels with accurate cash flow forecasting



In an interview for Receipt Bank, Manchester accountant, Stuart Hurst, shares insights on the value of cash flow forecasting for businesses, especially in a year of uncertainty.

The Director of Accounts & Legal believes that accurate financial data is critical to creating a cash flow forecast, which helps business owners sleep better at night. “As an accountant, that’s my reason for being”, says Stuart.

1. How do you, as an accountant, ensure effective cash flow management for your clients?

There are a few things that have to happen. First, there’s an education piece to clients, and you have to try and demonstrate the value of this service. I think Covid19 has made this easier, and for the first time we now have clients coming to us for support rather than us having to pitch the idea to them.

Second, data needs to be up to date, otherwise any cash flow is garbage (this is the technical term!). It’s also not something that should be done as a ‘one time’ kind of thing, it has to be continual to have any kind of value. And third, we also want to make the most of tech.

There are so many ways we can help cash flow management by turning on more customer payment methods, such as online payments and direct debits as well as software to help chase debts. 

2. Is forecasting a necessary step in this process?

I would say generally, the two go hand in hand – knowledge is power, as they say. I think forecasting is important because it gives us a chance to identify and flag any variances from the plan quickly, which means we can take action and prevent some potential problems further down the line.

It’s also great to forecast, as it can highlight any potential holes or issues with the current business model. Sometimes it’s not until you really start to examine the numbers in more detail that these things stand out. Prevention is better than cure!

3. What role do real-time and accurate financial data play in cash flow management and forecasting?

I think they are critical, to be honest. If we don’t have a definitive, up-to-date list of customers who owe us, as well as bills we need to pay, we could be miles off with any cash flow. It’s still alarming how many businesses still run blind basically from a bank balance, and it’s only when the balance hits the overdraft limit that they realise there’s a problem.

It’s easier than ever to keep up to date, especially as we now live in a world where the accounting tech can update itself to a large extent, so the burden of reproducing a cash flow manually every time someone pays (or doesn’t!) is now a thing of the past.

4. How do Xavier, Receipt Bank and cash flow forecasting tools complement each other?

Receipt Bank gives us accurate data quickly, and can process huge amounts of data. In lockdown, this has been even more valuable, as so many people are now working remotely.

Xavier is my absolute favourite app, you have no idea how close I am to getting a Xavier tattoo!

Xavier gives simply amazing data insight that helps ensure the data is as accurate as it can be, and the Health Score is a great tool to educate clients about keeping good records. We can also see clients’ health globally using Xavier – those that are smashing it right now versus those that are struggling, so it helps focus our efforts too.

This is then a nice set-up for using a cash flow tool. We know the data is of good enough quality and, as a result, this gives much more accurate cash flow forecasts.

5. What kind of advice have clients been asking for the most in recent months? Where does cash flow forecasting rank in the list of advisory services?

As soon as there’s been a new government support scheme, we get asked lots of questions about it, so that’s probably been the most requested and needed kind of client support. Cash flow would rank highly on services requested, and has been something we’ve looked to offer every client we work with.

It also ties so closely with loan and government grants applications, as cash flow is often a mandatory part of the application.

6. How do you package and price cash flow forecasting – as an individual service line or as a suite of services?

A bit of both, to be honest. We use GoProposal, so we’re really transparent when it comes to pricing in terms of line by line costs for our services. That said, it’s rare cash flow alone will be sold as a service, it’s usually with a range of other support activities, such as bookkeeping or a forecasting package.

7. Can you give examples of clients where accurate data has been critical to financial planning, especially in a year of uncertainty?

It’s been huge this year. The sales ‘tap’ got turned off for so many businesses once lockdown began. So having up-to-date and accurate data for almost all of these businesses has been literally business life-saving. Having accurate data has meant we can calculate cash burn rate, and things we can do to help slow this down.

We’ve also from there been able to create several financial models based on receiving a variety of scenarios, such as government support received, pivoting with new sales channels or even worst case staff cuts.

8. How has effective financial planning and cash flow forecasting helped businesses during the lockdown?

Firstly, it’s been almost mandatory for several financial support packages such as the Coronavirus Business Interruption Loan Scheme (CBILS) for example. It’s been key to help businesses plan reopening, as well as furloughing staff for example, as we’re able to model a few scenarios.

Most importantly, cash flow forecasting has helped reduce panic levels, and ultimately helped business owners sleep better at night. As an accountant, that’s my reason for being to be honest.

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