13 Week Cash Flow – 6 Key Points

Bank perceives you as a risk

Let’s briefly paint what is a familiar picture in many businesses… maybe yours too:

• Sales down with demand hit by recession
• Costs, driven by inflation, (particularly utilities) still high
• Customers paying ever more slowly

In the absence of further credit, it is inevitable that many businesses are trading at the outer reaches of their banking facilities. Banks and specifically their staff, are now extremely nervous of continuing to support businesses that are experiencing difficulties.   So if you find yourself on their radar they will be acutely sensitive to how you are managing your bank account(s) and paying close attention to your short term cash flow.

Scared… you should be

The press is littered with cases of banks withdrawing support from seemingly viable businesses.  So against this background, if you are struggling, of course you are rightly going to be anxious.  And it has never been so vital to be on top of your cash flow. Most people running a business have no problem with the principle of short term cash flow. They typically keep a rolling 4-week spreadsheet of expected cash receipts and cash payments.  But wait a minute… how frightening is that?  Business owners and directors with personal guarantees (and even their houses) pledged to lenders but can see no further than just 4 weeks into the future! Beyond 4 weeks, one might find some pretty dubious looking formulas. This is precisely why, when banks look for short term cash flow projections from a client, they specify a 13-week time-frame.  Most find it hugely distracting, at what is already a difficult time, to produce a robust forecast at an appropriate level of detail that a decent bank (or worse still, Corporate Recovery person) can’t punch large holes in.

13-week cash flow forecast for your bank… it’s serious

If your bank is seeking this information, possibly in conjunction with commissioning an IBR (Independent Bank Review) by their Corporate Recovery friends that you have the pleasure of paying for, you have to appreciate the gravity of the situation. You will resent both the cost and interference, particularly as the work is not for your benefit. The implications of the exercise are serious and if it goes against you, potentially terminal. So, if you can see this prospect looming (or ideally even if you just want to get a better handle and tighter grip on cash flow for your own benefit ) give some thought to these following 5 key points:

1) Get to grips with YOUR numbers… FAST

Don’t delay in taking ownership of ‘the situation‘ as a whole.  Don’t delegate it… not to your book-keeper… your Finance Director… Chief Fi8nancial Officer… whoever.  You just can’t afford to. Get to grips with your numbers… your accounts – even if you haven’t ever done so before.  Lenders despair of business customers who think it’s OK to have no idea about finance. So, if you need to, bring someone in to show you the basics (you’re not after book-keeper level detail).  At the very least you need to be able to gauge whether key balances are what you would expect them to be and to have answers to key questions.  It could take less than a day and, critically, it could help your Bank to feel that you are someone they can do business with.

2) Book-keeping… expect problems

It’s important that the underlying book-keeping is sound and up to date.  You can;t produce decent forecasts if they are not.  But that said, they are so often not. Because so little interest is often taken in this aspect when a business is doing well, problems only surface when things go wrong at a time when you need to produce credible and robust figures as much for your own needs as for those of a lender. As in any field, there are good and bad book-keepers. If you are unlucky, and you’re not close enough to the numbers to be able to spot what’s happening, you leave yourself terribly exposed at a time when you have precious little   opportunity to put things right.

3) Cash flow templates… that will help seal your fate

Some of the commonly available cash flow templates, even those (or perhaps especially those) claiming thousands of users, may be free but are poorly conceived.  They amount to no more than guessing when receipts will come in and payments go out. These are not what the Bank is looking for and they won’t give you what you need either. Neither is it appropriate to produce a cash flow worked up purely from the Profit & Loss (or Income Statement for those of you in the US).  Sales and costs are, of course, relevant but it is how these play out in the balance sheet that matters.

4) Help your lender help YOU

Now don’t get me wrong, banks are not free of guilt here but at the same time too little thought is typically given to what the Bank will consider to be a credible proposition. You need to be able to demonstrate how the measures you are taking, or will take, will help to preserve cash.   If you do the projections yourself, play devil’s advocate and be prepared to re-work the cash flow projections at least once a week… and most likely more often. Give real thought to the changes you will make that will see your cash position improve. The Bank will calculate the impact of what you suggest.  Make sure you’re one step ahead – it’s often trickier than you think.  When we coach entrepreneurs in these situations, equipping them to talk to their lender in terms the Bank understands, is a key aspect.

5) Cash flow problems… here today… here tomorrow

Don’t make the mistake of thinking that cash flow problems are like an on/off switch – that you’ve either got them or you haven’t. A business that finds itself struggling will typically not be able to transform its fortunes overnight from its trading alone.  It can take 12-months+ and the road to recovery is never smooth.  So keep the 13 week cash flow running.  It will prove itself invaluable not only for being able to flag up any day-to-day cash crises, but also (and critically) help you focus on the cash you need to meet any quarterly commitments as these are often big.

6) Sometimes you need to invest… not just cut

If you feel vulnerable, get someone experienced on your side (at an early stage if possible) to advise; maybe even a suitably qualified virtual coach – they don’t necessarily need to be ‘on-site’ with you.  It could prove a critical investment. Your staff can get other jobs… well, they used to be able to… you probably have even more at stake.   If any of the above is pertinent to you, perhaps take some comfort from what can be achieved in two extreme situations – see the scaffolding and windows case histories. If you have particularly pressing concerns about your situation, you can call us in confidence and without obligation. We can, if required, prepare cash flow forecasts (often remotely) from information supplied. These can be in .pdf format or hard copy as preferred.