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PrimeGlobal member firm FRP discusses the benefits of a short-term cashflow forecast in managing liquidity.

A short-term cashflow forecast is key to managing immediate liquidity in the challenging times brought about by the COVID-19 pandemic. A 13-week cashflow is a powerful tool that can help management teams make the operational and financial changes needed to manage cash and create a runway, so that a robust medium and long-term plan can be put together. 

In this article Partner Philip Watkins explores the benefits of a 13-week cashflow forecasting model and provides a useful 13-week cashflow forecasting excel template.

Why do we use a 13-week cashflow model?

Thirteen may seem like an odd number, but a 13-week period will capture the most important financial figures. This will include weekly and monthly receipts and payments, plus quarterly payments such at VAT, as well as rent and interest charges. It is these monthly and quarterly payments that are often seen as the most important and, by incorporating cycles into reporting, management teams will be able to identify peaks and troughs over the period, and ensure these can be planned for moving forward.

I know my businesses receipts and payments for the next few weeks, but beyond that I am struggling to forecast?

The forecast for the first few weeks will always be the most accurate. As the current debtor, creditor and stock position unwinds, management teams will sometimes need to make assumptions for the latter part of the 13-week period. To do this as accurately as possible, it is wise to look at historic trends. Assumptions that are based on previous activity can be reasonably supported and, for those occasions where a judgement call needs to be made, we would recommend this is discussed with the wider management team. That way, the whole organisation takes ownership of the model and the accuracy and ability to forecast will improves over time.

We are clear on how to forecast in normal times, but the crisis brought about by the COVID-19 pandemic makes the forecast impossible?

We suggest that a normal 13-week cashflow model is put together in the first instance, with the inclusion of additional adjustment lines to reflect the current impact of the COVID-19 pandemic on the business. This may include the deferring of receipts from customers and payments to suppliers, plus the effects of the government measures that have been provided. By doing so you can then include VAT and PAYE deferrals, furlough staff payments and rent deferrals, which will help you to forecast as accurately as possible.

What other immediate steps do you recommend that management take?

Stakeholder management is of vital importance in any crisis. Management teams must have regular contact with customers, suppliers, contractors, employees and funders to ensure all parties have the information they need at the time they need it most.

Trust is also a key factor in stakeholder management and during a time of crisis it can be easily broken. This is why communication is so important, and management teams should only commit to payments when there is overall visibility of the businesses’ position and its ability to do so.

13: An Important Cashflow Number

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FRP Advisory

FRP is a leading business advisory firm with a strong reputation for providing cross-border solutions to create, preserve, and recover value across a range of complex stressed and distressed situations. Working across the board, from multinational organisations to small enterprises, we develop effective strategies for all kinds of businesses.

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