Monday, 15 December 2008

Selling on credit

Whilst selling on credit is a big subject, one idea to highlight:

It's worth maintaining a good relationship with your customer accounts payable or bought ledger department by telephone to check before invoices are due:
  1. Whether invoices have been received, especially large invoices
  2. Whether they have been passed for payment, or if there are any issues
  3. When payment is scheduled
This can nip problems in the bud earlier, and help compile a more realistic cash flow forecast.

Monday, 8 December 2008

Borrowing - the need for forecasts

Banks and similar finance houses will be looking for three key aspects, amongst others:
  1. That repayments can be made out of cash flow
  2. The value of suitable assets, such as debtors, stock, premises, equipment or vehicles
  3. The value of net assets of the business

It's therefore important to compile a cash flow forecast and balance sheet forecast that reconciles to the P&L account forecast.

Monday, 1 December 2008

Paying PAYE, VAT and other taxes

When a cash flow forecast for a business is prepared, significant items include PAYE, VAT and other taxes.

The Chancellor announced the "Business Payment Support Service" to potentially allow tax debts to be paid over a longer period of time. Interest is still charged, but late payment surcharges an be avoided.

Details at:

Whilst this service could be extremely useful, it should be used with care.

Monday, 24 November 2008

Cash Flow Forecasting - Case Study

The MD of a young company was already preparing cash flow forecasts periodically. However they were proving unreliable, so a number of changes were made:
  1. Using the clearance date of transactions
  2. Capturing each category of spend
  3. Tying into bank reconciliations
  4. Changing frequency

The result was that he became completely in control of the company's cash position, and avoided surprises.

He was then able to discuss any funding needs with the bank, or take other appropriate action. The result was that cash crises were avoided, and the company continues to thrive.

If you would like to discuss how to go about preparing a cash flow forecast, or would like your current forecast reviewed, do contact me.

Chris Challis

challisc @

+44(0)1628 632914

Wednesday, 19 November 2008

Cash Flow Forecasting

Does your business prepare regular cash flow forecasts?

Cash is the lifeblood of any business. It doesn't matter how profitable you are, profit isn't cash:

(1) If you get paid by customers after you have to pay suppliers, growth will consume cash - which can lead to running out of cash by "overtrading"

(2) If you pay suppliers after you get paid by customers, a downturn will result in a negative cash flow

(3) Cash can be spent on buildings, plant, equipment and other fixed assets

(4) Rent and other costs are paid in advance (whilst others are paid in arrears)

(5) VAT, PAYE and other taxes need to be paid at specific times

It's therefore important to pull together a picture of all anticipated receipts and payments on a regular basis. By modelling possible variations, you can then see how to manage within your means, or what additional financing you need. When cash is tight, the forecast will need to show the anticipated cash movements by week.


If your company is being audited, you'll need a cash flow projection of some 14 months or more (so it is at least 12 months from the date of signature of the accounts) showing the business is a going concern. If that's not clear, what actions need to be taken?

And if you are starting a business, or planning to expand, its important to see what the cash requirements will be for two years or more, usually by month.


In most cases, a cash flow forecast should be linked to both a profit and loss statement, and a balance sheet. This is because the balance sheet shows the assets that may be available for financing, and the net assets of the business that financiers need to see. Linking the three views of the business also acts as a cross-check on the completeness of the cash flow forecast itself.

If you would like to discuss any of these ideas, do contact me.

Chris Challis
challisc @
+44(0)1628 632914