By Guest Blogger, Paul Talkington, Director Taxation and Business Solutions, Vincents
What is a 13 week rolling cash flow forecast?
A rolling cash flow forecast is a (relatively) simple excel spread sheet setting out on a line by line basis the weekly cash receipts and payments for the next 13 weeks into the future.
The cash receipts can be estimated from what you expect to collect from your debtors (accounts receivable) aged listing and other cash receipts.
The cash payments can be estimated from what you expect to pay to your creditors (accounts payable) aged listing, credit card payments and other direct debits such as wages, rent and equipment finance from your bank accounts.
You can have separate cash receipt and cash payment lines for your major customers and suppliers.
At the end of each of the 13 weeks into the future you will be able to see your forecast bank balance.
It is a rolling cash flow forecast as each Monday morning, you update the forecast with the actual cash balance as per the bank statement from the previous Friday, and any changes to the receipts and payments in the13 weeks ahead.
Over time you will be able to build up a reliable history of the known cash outflows that have to come out of your bank account, e.g. rent of $6,700 on the 12th every month, wages every second Wednesday of $22,000.
How will a rolling cash flow forecast help your firm?
Other accounting reports such as the profit and loss statement and the balance sheet, report on what has happened in the past, which - unless you are Doctor Who and have a Tardis - you can’t change.
A 13 week rolling cash flow forecast looks forward, and based on your best estimate as at today models what might happen in the future – and develop plans to manage and mitigate potential problems in advance!
For example, if in two months’ time on a Wednesday, your rent direct debit, your fortnightly net wages and your quarterly BAS due to the ATO is going to come out all at once - and you don’t have the overdraft limit to be able to pay it - you can start to plan in advance to manage the situation.
It can also assist in business planning and strategic decision making:
- Based on past trading can we increase the partners’ draws?
- Will we have enough funds to pay the holiday pay over the Christmas office shutdown?
- How much cash will be required to fund the new branch office for the first six months?
How can you learn more?
The 13 week rolling cash flow forecast will be discussed using a simple example at the upcoming ALPMA webinar and a free template made available to participants.
About our Guest Blogger
Paul Talkington B.A.(Acc) / CA is the Director - Taxation & Business Solutions at Vincents. Paul looks after a range of medium sized private clients including law firms, heavy industries, retail and mining supplies businesses. He has significant involvement in business restructuring, cash flow management, business and personal income tax, finance applications and due diligence. He has a particular interest in implementing practical solutions in order to improve business gross margins and cash flows.
Paul joined Vincents in 2008 and became a director in 2011. He has an extensive background in both commerce and public practice. Paul has worked in various areas, including middle market advisory at Deloitte, chief financial officer of a national logistics group and general manager commercial for a mining supplies business.