07 Sep Not everybody does it but everybody should!
So George Michael may have been singing about something else but equally he could have been talking about cashflow statements. A surprising number of businesses are not aware of their cashflow but will readily tell you what their profit or sales targets for the year.
In my experience of over 20 years as an SME Finance Director, a surprising number of companies do not give cashflow any airtime but instead will focus on endless Profit KPI’s and charts.
In fact I have read some recent articles suggesting SME’s should not bother with cashflow statements at all and instead focus all their attention on the business drivers. Focusing on drivers should indeed be the priority but the problem with ignoring cash is that expenditure is rarely even and those that have not put enough aside or even have some buffer will regret it when that inevitable bump in the road occurs.
Cashflow is rarely uniform?
Expenditure is unlikely to occur in neat monthly amounts. Keeping enough cash aside and running some buffer will avoid a crisis or the worry of whether you can pay staff if something unexpected happens. Here are some examples,
- Corporation Tax
- Annual Customer Rebates
- Staff Bonuses & dividends
- Exhibitions
- Creative design, photography & Product Guides
- Premises refurbishment
- Machinery purchases
- Business Moves
- Acquisitions
- Loan Repayments, particularly bullet terms
- Customer payment holidays
Traditionally accountants have prepared an annual budget cashflow against which monthly actuals are reported. Most will have a 13-week cashflow statements. But the best will prepare Integrated rolling cashflow statements.
In fact these Integrated Cashflow statements that link the P&L statement, Balance Sheet and cashflow together are now commonplace. Major institutions such as banks, investors and Private Equity expect these integrated forecasts. They do so as it ensures you have included everything and so more reliance is placed on this type of forecast. There are no hiding places when you forecast these 3 statements together.
Most will pull this together on a spreadsheet as the last stage of the budget process and for some this fine but a surprising number are too simple, make unrealistic assumptions and contain enough errors to make the reader question how accurate its likely to be. Worse, you can spend hours creating hours preparing a model and searching for differences when all you really want to do is focus on the business.
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And next time you hear that song, spare a thought for the cashflow statement!
#integrated cashflow statements
#cashflow forecasting and budgeting software
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