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Why Trends Are Better Than Accuracy When It Comes to Your Client’s Cash Flow Forecast

Posted on 14th March 2017 in Cash Flow

Written by Amy Harris

We explore why complete accuracy is not required when it comes to KPI reporting, scenario planning and even a cash flow forecast. Don’t faint, read on, you’re definitely going to want to find out why…

Your clients have a lot on their plate. From dealing with suppliers to meeting deadlines, shipping products, or working tirelessly on business development, there is more than enough to draw their time and attention away from keeping an eye on their cash flow forecast.

This is a massive opportunity for you. Step up, provide a solution they’ve never thought of and become a reliable source of trusted information and you’re their new hero. Running a business is hard and, when you’re at the top, sometimes even lonely. The responsibility falls on their shoulders and they have to make every decision that matters.

Your time is at a premium too, but being able to guide your client on matters of cash flow will elevate you above your own competition, and make you an integral cog in the machine that is your client’s business in the process.

How Accurate Should You Be?

In short, complete accuracy is not required when it comes to KPI reporting, scenario planning and even a cash flow forecast. It goes without saying that accuracy is the ultimate goal for all accountants, but achieving said accuracy often requires a level of detail that isn’t always forthcoming from your clients.

So long as the numbers you are using are based on reality, you can complete a picture of the health of the business, even if you’ve had to colour outside the lines a little. What you’re doing is starting the conversation and providing them with something they can base decisions on. What’s the point in making outdated decisions on accurate information?                           

Which Trends Should You Report On? 

When you are reporting cash flow forecasts to your client, what they are really looking for is your professional insight and guidance – not just a collection of figures with little ­to ­no explanation. The important factor here is the plural: you might have many forecasts representing a best or worst case.

Your client may need a forecast showcasing the results if they make an acquisition, and another displaying the results if they do not. The options are endless. The important part is that you and your client are addressing outcomes and planning for them, combining your expertise and theirs in a forecast based on real data.

It is therefore important to know which trends to highlight and communicate in order to add value to their business, and help them avoid any nasty cash ­related surprises further down the line.

In general, it is beneficial to report on the following trends:

  •      Cash shortfalls
  •      Debtors
  •      Accounts payable
  •      Capital expenditure

Spotting Cash Shortfalls

A hugely important trend is identifying a shortfall in cash early enough to do something about it. This can be the difference between the life and death of a business.

By providing your client with this information before it’s too late, they have time to seek an alternative means of income, such as extending an overdraft or chasing up overdue invoices.

Managing Debtors

Speaking of overdue invoices, with everything else going on, it is all too easy for your client to overlook issues with debtors. Spotting trends regarding particular debtors will allow you to advise your client to toughen up and seek payment as agreed in their terms of business.

Check out Chaser and Satago, invoice chasing integration software that makes it extremely easy for your client to get paid more quickly, and have a healthier bank balance as a result.  (You may even want to use them in your own business.)

Assessing Accounts Payable Policies

Is your client jeopardising the business by being too lenient with their credit terms, or by paying their suppliers too quickly? Identifying such trends will help your client understand when to stick or twist with regards to available cash.                                   

Planning Capital Expenditure

Another pitfall to be avoided by picking up on cash flow trends is capital expenditure. Advising your client of the best times to buy new fixed assets will help them circumvent the unwanted scenario of needing a piece of equipment, and not having the surplus cash to pull the trigger on the purchase.

The Logical Next Step

Delivering a quick and clean insight into your client’s cash flow trends provides them the data they need to make smart, informed decisions regarding the health and performance of their business, long before they come unstuck due to cash shortfalls or unfavourable payment terms.

FUTRLI can help you create forecasts in seconds. Produce an entire forecast based on last year’s actuals or some what-if assumptions and start talking to your client about their future, not just the past.

Once the conversation has started, you have the opportunity to share advice in a more focused manner.  It is at this point that you can begin to put a plan in place to review a variety of  different outcomes, as well as build the master forecast.

Speak to our team about how easy it is for your practice to look to the future alongside your client.