Poor cashflow is cited as the reason for up to 82 per cent of failed businesses. With this terrifying statistic in mind, can you answer the following eight questions to see how your business stacks up?

1.   What will your turnover and net profit figures look like for the next quarter? The next year? The next five years?

2.   What will the sales split look like across your various product lines?

3.   How much will your cost of sales (ie purchase cost, material cost and delivery) be?

4.   What is your gross profit margin (GPM) per product/service?

5.   What are your fixed costs for each month (rent, rates, utilities, insurance, wages etc.)? What is your break-even point?

6.   Are there any exceptional items or purchases to be made in the next 12 months? How will these be financed?

7.   How do your cash flow and working capital requirements roll forward from month to month?

8.   Looking forward, are there any sticking points that you may need to cover with a loan or an overdraft facility from your bank?

How did you fair? If you were able to answer all the questions, great; drop me a line and let's have a coffee?

If you’re like many small business owners, however, then you may not know the answer to some of those questions.

This means your cash flow is always going to be a venture into the unknown.

Not only does a financial forecast sense check your plan; the process gives you a benchmark and something to review against, with the added value of the opportunity to adjust your business activities as it develops.

What are the key steps in putting together a robust cash flow forecast?
First and foremost is gaining an insight from previous months or years.

1.   Obtain up to date financials for the previous full year, as well as P&Ls sorted by month-to-date and year-to-date.

Before you look forward, you need to assess what current trading and expenses looks like. For many businesses, this can be a major challenge which tends to be left to VAT quarter ends or pulled together at the last minute, just before corporation tax payment deadlines. If approached infrequently, this could mean a nine to 12-month lag in financials and things may have changed drastically since.

You wouldn’t drive a car without being able to see out of all the windows, front, back and sides, so don’t drive your business that way!

I would encourage every business to move to online cloud accounting as soon as possible;

If you’re a VAT registered SME, April 2019 is a mandatory deadline for HMRC digital tax compliance.

Consider the likes of  Xero ,  QuickBooks  or  Sage One  software. You'll be able to complete your VAT electronically to meet MTD deadlines and it’s much easier to manage your business finances with the added benefit of linking to your bank account, allowing instant reconciliation. If you're adept at using the software, this may even reduce your accountancy fees; speak to your accountants as many offer wholesale packages that include discounted cloud-based software.

2.   Once you have last year's and current trading accounts up-to-date, analyse if there are any trends. Does seasonality swing sales revenue?

Do your costs of sales increase dramatically during busy periods as you hire in sub-contracted labour?

I see this a lot and certainly prevalent in service industries.

Or do those large contracts and order spikes utilise additional material, increasing stock levels, soak up your cash and also undermine gross margins? Don’t become a busy fool.

Get a handle on product or service revenue peaks and troughs and (most importantly) the gross margin and sales trends over the course of a full trading year.

Looking forward, you should be promoting and selling those products or services with the highest margins, along with proactively managing those peaks and troughs.

3.   Cost of sale analysis. If you are using sub-contracted labour continuously, consider recruiting your own employees. Having your own staff will be more cost effective in the long term, giving you more control and securing future capacity for growth.

A client of mine doubled their gross margin on the services they offered by bringing in additional members of staff, rather than distributing the work to contractors, but this takes time and you need to plan ahead.

Likewise, if material purchases are high, could you reduce costs by negotiating better terms or going to a different supplier?

Ensure there isn't a lot of wastage/surplus or write-off of materials in the delivery process, too. If there is, where and how could this be improved?

4.   Fixed costs. When was the last time you reviewed your fixed costs? Did you consider each of the following areas?

a)   Wages: how much overtime do you pay to keep on top of things? Review workflows and consider introducing shift patterns to be a more effective of covering the workload; do you have too many staff standing idle at certain times?

b)   Rent, rates, heat and power: are you on the best terms, could you renegotiate your property lease? Consider moving utility suppliers or fitting a smart meter, as there may be big savings. There are independent energy brokers that can do the legwork for you in sourcing a new supplier, but make sure you engage with a reputable broker.

c)   Motor expenses: big savings can be made here. Look at fleet renewal programmes and consider new vehicles and maintenance contracts to fix costs. If you don't have the time to sort this out yourself, a good place to start is a free consultation with the likes of  Lakeland Fleet Management . Consider fuel purchases and also look closely at route planning; are there efficiencies to be gained here?

d)   Printing and stationery: ink cartridges cost a fortune, so consider switching to pay-per-page or leasing a photocopier or printer – the newer machines are much more efficient and often better quality. A client of mine moved to a  Tech4 Office Equipment  rented printer and not only saved an estimated £240 per year, but also increased the quality of their printing.

e)   Postage: do you need to send everything by post? Could you send invoices and statements as PDFs via email? Most companies do nowadays and it has become generally accepted practice.

f)    Bank and interest/charges: review your bank charges, do you process payments to suppliers and wages at the last minute? What if you planned payments 3 days ahead, could you reduce your bank transaction charges? Consider overdraft facility charges or discount invoicing charges compared to longer-term businesses loans. Now is a great time to consider refinancing your existing borrowings at cheaper and more affordable rates. The Bank of England are likely to increase the base rate again in late spring 2019. If there’s likely to be a smooth Brexit the indications are interest rates could go up, at least a full 1% during 2019 an maybe more.

g)   General expenses: these shouldn’t be a costing code to sweep things under the carpet. What costs end up in here? If they’re bad costs, why? What could you do differently going forward to reduce these expenses?

“If you always do what you’ve always done, you’ll always get what you’ve always got.” Henry Ford

In summary
Before you plan and look ahead, consider all cost lines. Ask yourself, "Could we manage our business and costs more efficiently?" Write down a list of actions before you plot the next few years’ growth plans, then plan out your working capital requirements and adapt what you can immediately, turning these items into quick wins.

Once you have analysed and reviewed the current state of your business finances, you are ready to start plotting the future business growth with the objective of improved profitability and cash flow. I will cover these next steps in next week’s blog.

By using good budgeting and financial planning processes, you will have time to focus on the appropriate actions to generate sales and margin growth and the positive impact this has on the business' bottom line and working capital.

Ultimately “getting your business working for you!”

Want to learn more?
Why not get in touch and we can have a chat over a coffee?


We are running a couple of short breakfast seminars on “How to get your business working for you”

Wednesday November 28 , 8.30am–10.30am, The Trout Hotel, Cockermouth .

Further information and booking link

Thursday December 6 , 8.30am–10.30am, Crown & Mitre, Carlisle

Further information and booking link

These seminars are suitable for business owners who are:

  • Frustrated that business growth goals haven’t materialised during 2018
  • Disappointed that profit hasn’t improved this year
  • Have concerns about setting 2019 targets and what 2019 may bring you
  • Anxious about predicting sales and how to cover business costs in 2019

If you are looking to grow your business,  Business Doctors Cumbria  offers a free business health check where we can help you to set a clear vision to understand the key steps you need to take to fulfil your aspirations.

Contact Peter Fleming by phone on 0845 163 1490 or 07966 686112, or by email at  peterfleming@businessdoctors.co.uk , or visit our website . <script>var hideInlineMPU=1;</script>