Cashflow Forecasting – Implications after Covid-19

The current business turmoil caused by Covid 19 is creating a wide range of challenges for businesses across numerous sectors. It is important to remember that this is a health crisis rather than a financial crisis and the Government is taking significant actions to do everything in its power to avoid this turning into a financial crisis. The hope is that when a degree of normality returns, businesses will be poised to continue their activities with shored up finances and intact teams.

Available support includes (but is not limited to) loans with 80% underwritten by the Government (CBIL), not having to pay VAT next quarter and potentially deferring PAYE. There is plenty of information in circulation about these opportunities, so criteria are not addressed within this document.

Cashflow management is crucial in normal conditions, so now it could be the difference between survival or the alternative. Knowledge is power and Directors need to be armed with facts and figures about how their cashflow will operate. This will enable them to make informed decisions about their business and how to utilise the various forms of support being introduced by Government.

Using Cashflow Forecasting for Business Decisions
By way of example, a business seeking CBIL will need to determine the size of the loan required, based on reasonable assumptions, which should underpin its s urvival. There can be no certainty today over how long the current crisis will last, but a sensible cashflow forecast can test various scenarios, take account of deferring VAT and PAYE, the impact of furloughing some employees and work out the loan required and the ability to service the loan repayments in the future, which will assist with determining the length of time over which the loan should be requested.

Banks’ criteria and process for CBIL is not yet known (at the time of writing), but we expect that they may request cashflow forecasts to support applications, particularly over a certain size or possibly over a certain multiple of past profits. We do know that VAT and PAYE arrangements are likely to require cashflow forecasts.

Even if not required for these purposes or if no additional support is being sought in the short term, cashflow management should be a top priority and a cashflow forecast is a key tool. Directors are facing enough challenges at the moment and a cashflow forecast will enable decisions to be made with a degree of confidence.


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