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 The Challenge
Don't be caught by surprise! - You will have to deal with many unexpected events during a business life, including many that you cannot anticipate. Make sure that you do everything you can to plan for those eventualities that you can anticipate and get your responses in first.
The Solutions
- Make sure your projections are realistic and reflect developments in your business
- Make sure your profit and loss and balance sheet budgets are fully reconciled to cash flow forecasts
- What is your track record of meeting budgets - on past performance, are your projections achievable?
- If you have a poor record of accurate forecasting your bank will assume as much with any new forecasts you present
- Regularly review performance against expectation - make sure you fully understand the reasons for deviations and take action as necessary
- Make adjustments to forecasts if actual performance demonstrates evidence of poor assumptions
- Challenge your assumptions, or get someone else to do it for you
- If you are presenting the budget, prepare well - present to colleagues or close advisers and get them to ask the awkward questions - have your answers ready
- Use the budgeting process to challenge your own accepted wisdom - if your debtor recovery averages 60 days the cashflow needs to reflect this, but ask yourself: is 60 days good enough?
- Ask yourself what if... How sensitive are your projections to external factors, eg what will happen to your cash requirement if sales growth is less than you expect?
- Carefully manage your cash flow. Know what it is and how it is forecast to fluctuate at all times
- Underperformance (eg lower sales, lower margins or higher costs) will adversely affect cash flow. Sensitise your forecasts to anticipate this and play with other variables such as reducing overheads to prepare a plan to address the situation should it be required
Contact Smith & Williamson
This document is part of the Entrepreneurs' Toolkit series, produced by Smith & Williamson. More information on this and other toolkit topics is available at www.smith.williamson.co.uk/entrepreneurs.
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