Forecast your cash flow | Ulster Bank

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Forecast your cash flow

Coronavirus support

COVID-19 brought business revenues to an abrupt halt for many companies. Now more than ever it is critical that businesses manage their cash flow effectively.

In this guide, we explain how to improve your cash flow position by creating a cash flow forecast.

Know where your business stands, with a cash flow forecast

A cash flow forecast is critical for businesses still in lockdown or preparing to go back to work.

You should consider:

  • What would happen if you lost your biggest customer?
  • How long would cash reserves last if your revenues decreased by 10%, 20%, 30%, 40% as you return to business?
  • At what point will your business be in danger of running out of cash?
  • How do you need to adjust your costs in order to make your cash last longer?

This template has been built in partnership with FreeAgent, award-winning* online accounting software available free to Ulster Bank business current account customers. *Most Outstanding Accounting Software of the Year, SME News Business Elite, 2019

This document is a forecasting guide for illustrative purposes only and VAT amounts are purely indicative. None of the content should be construed as advice on tax or financial matters.

We have listed some of the options that might be available to you below, but please remember this is not advice or a recommendation of any kind and there may be other options available to you and so it is important that you do your own independent research. You can refer to your own accountant, or if you don't already have an advisor, eligible FreeAgent customers can find an accountant to work with directly within their account.

How to create a cash flow forecast

Use our simple Excel template (XLSX, 2,852KB) to help you populate your cash flow. 

Guidance is provided within each tab but here is an overview of what you will need to do.

Step 1: General information and categories

First, you’ll need to input some general information about your business such as a starting bank balance and marginal rate of tax (if applicable).

 

Next, choose the sales and overhead categories relevant to your business from the drop-down boxes and input when you pay invoices and receive payment in respect of your sales.

Step 2: Profit and loss

You’ll need to ensure you have your previous Profit & Loss to hand for the next part. Inputting these details month by month at the outset will provide a basis for you to create cashflow and P&L forecasts.

 

Once you’ve done this you can create your own scenarios, using the "P&L Percentage Changes" and "P&L Actual Changes" sheets which allow you to add, month by month, how much you think your sales and costs will change as a result of coronavirus.

 

You can either use percentages or actuals, but not both. Using these tabs, you could help answer these sorts of questions:

  1. Will your sales fall by 20% in month 3 compared to last year's month 3?
  2. Will your purchases go up by 10% if you had to buy new stock in?

Why a profit and loss forecast is useful:

 

  1. Having a view of how much profit you expect your business to make allows you to estimate how much tax you’ll be liable for in future
  2. If your profits fall (or costs rise) you could be at increased risk of running out of cash. You may need to raise your prices or borrow some money to mitigate this risk.

Step 3: VAT

The "VAT percentages" sheet pulls the usual VAT percentage for that category, as set by you on the "Categories" tab, to apply monthly to your P&L figures so that they show inclusive of VAT on the cashflow forecast.

 

This sheet is editable, which lets you adapt your VAT figures. For example, if you benefit from the 5% reduction set by HMRC for the hospitality industry, change your VAT percentage from 20% to 5% for the appropriate months.

Step 4: View your forecasts

You can now look at the "P&L Forecast" and "Cashflow Forecast" sheets to see the results of your changes, such as:

 

  • What happens to your cash if you pay your suppliers 1 month later?
  • Do you run out of money if your customers pay you a month more slowly?
  • How quickly will you use up your cash if your costs go up and your sales go down?

The "P&L Forecast" sheet also shows how much your profit will change year-on-year, comparing the forecast to last year's figures, both in actual pounds and in percentages.

 

The "Cashflow Forecast" sheet contains a rough approximation of tax based on your monthly profit.

 

It also has yellow rows where you can enter cash receipts and payments that won't be on your P&L, for example, loan repayments, or money you've taken out if you're a sole trader or partner.

 

For the more visual person, the "Graphs" sheet enables you to see quickly how your sales, gross and net profit, and cashflow, will change.

Have you identified potential issues with your cash flow in the near future?

 

Government support

The government has introduced a number of schemes to support businesses through the coronavirus crisis.

Check what you could be eligible for on the coronavirus hub.

Coronavirus hub

Crowdfunder

Pay It Forward by Crowdfunder is a donation and reward-based service. It allows you to generate funds for your business without releasing equity. £5m has been raised so far across 1.5k businesses.

Crowdfunder

FreeAgent

FreeAgent is the small business accounting software that does it all. Manage expenses, fire off an invoice, check your cash flow and stay on top of your taxes on the go.

Try FreeAgent

Helpful links

Related guidance and support you may find useful

Returning to work

Bring your business online

Coronavirus hub

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