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Money Never Sleeps…neither will you if you’re troubled by cash flow

Forecasting and managing cash flow are important for all but the luckiest of businesses. Our clients who make time to consider the drivers of their cash flow and predict their future cash position are seeing planning benefits and getting some much needed peace of mind.

Cash flow model for businesses

It’s really important to know if you’re going to have enough cash to sustain the business.

If things are tight there’s lots you can do to pull yourself through. You’ll need an action plan that may involve borrowing, deferring payments, cutting costs or accelerating cash takings to ensure you have enough to get through.

A good simple cash flow model will help you make a plan and get on with what needs doing.

Developing a cash flow model

A cash flow model will be structured in time periods, often months, sometimes weeks and even daily if things are really tight.

It will list all the cash predicted to come in and all the business’s payments. Ideally it will allow users to shift things around to show the impact and possible improvements if certain payments are deferred or receipts brought forward.

Longer term models of 2 – 5 years are designed to test a business’s overall viability and investment return whereas short term models of 3 – 6 months will be used to plan and manage individual payment and cash planning strategies.

Beyond the end result, the process of developing the model – thinking through everything that will influence the timing and size of cash in and out is really valuable for business managers. Usually that process alone is enough to identify what needs to be done to improve things.

Cash flow modelling tools

Excel: The traditional tool used for cash flow modelling. It’s great if you know how to use it, but there are some alternatives these days that make things easier for novice and even expert excel users.

Vistr: We have a number of clients using Vistr, a Xero add-on that automatically populates with your Xero data as a starting point. Invoices and bills are brought in with payment dates predicted, though these can be changed. Account histories can also be used to predict future payments and receipts in flexible ways.

Castaway: For more complex and longer term models Slate now uses Castaway with some clients to develop so called “3-way” model of the cash flow, profit and loss and balance sheet.

Castaway is great with predicting the impact of lending and finance, as well as tax office and compliance payments. It also consolidates nicely so that individual business sections (such as business units, stores or projects) can be individually modelled and then rolled up.

Need help managing your cash flow? Contact us at Slate Accounts if this is an area you’d like help with.

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