Business 101: Predicting cash flow in Covid-19 era is vital
JOHANNESBURG - Cash flow is the lifeblood of businesses, particularly small and medium-sizes enterprises. However, the coronavirus (Covid-19) lockdown regulations unexpectedly cut off this critical supply for many businesses, hampering their ability to meet immediate financial obligations like paying employees and suppliers.
While the relaxation of the regulations has been a welcome relief, the economy is still a long way from settling into a new normal, making it more important for businesses to keep a tight hand on budgets and cash flow in the coming months.
Businesses need to focus on updating cash flow statements – a vital tool to measure the amount of cash entering and leaving a business.
Herewith are tips for businesses to stay on top of their cash flow during Covid-19.
Budgeting and forecasting cash flow need not be a complicated exercise. A simple spreadsheet that breaks down all revenue and expenses is just fine.
While employing an accountant is good, it is important for businesses not to shy away from numbers. They must know exactly what the accountant is doing and understand the statements.
Businesses are known to be eternal optimists on budgeting. However, an overestimated income can also provide a false sense of security. One of the best ways to project the reality is to base figures on historical sales data over a similar period, and ensure that deviations from such data are based on realistic factors such as the impact of Covid-19.
Businesses should refer back to their management accounts regularly instead of only conducting annual financial reviews.
They need to analyse historical financial statements when necessary. Under Covid-19, cash flow statements and forecasts need to be updated as regularly as fortnightly – or even weekly – to allow businesses to know where money is spent, and cut back where applicable.
There are great digital offerings that can provide a real-time overview of your business’ cash flow position. Some of the latest software packages are even able to take the current economic climate and industry trends into account to forecast the financial position of a specific business. So, if you are still spending countless hours on keeping physical accounting books, now might be the perfect time to get with the times and digitise your cash flow system.
Ben Bierman is a managing director at Business Partners Limited.