The near-term health of your business will depend on your team’s capability to navigate the next few months. Having a cash flow model that forecasts your cash position over the next 13 weeks is a critical business planning tool – you can dynamically change any input and scenario to see how those decisions impact your cash position. Think of it as both as early warning system and the winning formula to exit this recession ahead of your competitors.
Cash flow is the oxygen for your business. Run out of cash without the ability to secure an immediate capital infusion and the business becomes insolvent. The long-trusted cash flow analysis over 13 weeks (approximately 3 months) is an ideal timeline to use in the current challenging environment. You build the cash flow model based on a complete historical analysis of the business and then run new scenarios including:
- AR, i.e. which customers are paying and which at risk;
- PPP and other stimulus cash infusions;
- Employee roster and payroll changes;
- Vendor moratoriums, negotiated discounts and vendor payment plan;
- Expense adjustment and reductions;
- Inventory needs;
- Rent and other lease obligations moratorium;
- Stakeholders including lender obligations and loan payment moratorium.
You can determine the frequency of updates/analysis of the 13-week cash flow forecast model, from daily to weekly. You can also create multiple different scenarios, so you can plan for best-case, worst-case and everything in between.
Cash forecasting creates a much clearer picture of where the business’ cash position could be. If appropriately used among senior management, a cash flow model also builds buy-in and consensus for critical changes that need to be made within the business.
If you need help building a cash flow model, please call or email us.