Forecasting for resilience

‘Cash is King!’ the old saying goes. But it can only reign supreme if it is managed effectively.

Right now, as companies take stock and plan for the future in the wake of the Covid-19 pandemic, cashflow resilience will be critical commercial success factor. This is why we ran a timely session on cashflow management in partnership with financial experts BDO.

This focused session covered how to build an effective cash forecast on the basis of three building blocks: what you know has happened, what you know will happen, and what you think might happen (this, relating to sales and purchases that have yet to be made, being the most difficult part).

Delegates were advised to take a view for no more than 13 weeks ahead (any shorter won’t give a good level of visibility, any longer is hard to project accurately) and to keep forecasts simple so that they can be maintained and acted upon efficiently. BDO also stressed the importance of using hard data and to keep forecasts as realistic as possible: to be too optimistic by overstating sales and understating costs, or conversely to be too pessimistic dismissing historic trends, will achieve nothing. As an iterative process updated weekly, the accuracy of cashflow forecasts improves over time, based on fact.

The BDO team also touched on cost reduction strategies and directors’ responsibilities, as well as outlining the pitfalls that they frequently witness when working with their clients on cash management. Awareness and ownership of figures across the business, along with early engagement, openness and regular communication with external stakeholders were key themes in overcoming many of these issues.

This session also touched on the various grants and government support that have been made available to support businesses in these unprecedented times. While these interventions have certainly been welcome for many businesses, meeting participants were warned that it is likely to be the end of this year, as credit lifelines are called in, when the full impacts of these measures are felt in terms of cashflow.

Jane Holt, Business Development Director for Southampton Science Park, thanked everyone for creating and attending the session. She said: “This was a really good journey through a topic that has been a real matter of concern for many over the last few months. I certainly found it very informative and helpful. As we all consult our crystal balls over the weeks and months to come, BDO’s advice will stand us in good stead during what is likely to continue to be a turbulent time for many.”  

Kim Hayward, Partner at BDO added: “While there remains concern over cashflow now, the real impact of working capital pressures will be felt further down the line as we come out of lockdown. So, at the risk of telling people to suck eggs, if there’s ever a time to get your cashflow right, it is right now.”

He continued: “Learnings are incredibly important. Every business will benefit from sitting and reflecting on the situations they’ve faced this year and more efficient businesses will emerge. I wish them all luck on these journeys.”