The Covid 19 virus and resultant lockdown is putting firms finances under pressure – and leaders are looking to the finance teams for guidance.

Unfortunately, most of the Management Information regularly produced is historic. What has happened, not what will happen. Rather like using the rear-view mirror to drive the car, it gives no indication of what lies ahead.

What we need is to know what our financial position is likely to be in the future and whether we have enough resources to continue as we are.

In effect what we need is a road map which shows where we are headed – hopefully not for a Cliff edge. This is the role of the cash flow forecast.

The cash flow forecast is a future prediction of our income received (cash inflows) and expenditure (Cash outflows).

By taking the current cash (or overdraft) position, adding the forecast inflows, and deducting the cash outflows, we can forecast the closing balance (or overdraft) at a future date.

Hopefully, the resulting balance is well within our available facilities. If so, carry on as normal.

In the current circumstances, there will be many forecasts which show that current facilities are inadequate. This is where the cash flow forecast comes into its own.

It is an early warning system – it as so avoids nasty surprises. Very useful as banks hate nasty surprises.

It shows us how much extra resources we may need – where we get them from is a separate issue.

It helps us to identify potential evasive action in time for it to be effective.

Importantly it demonstrates to potential lenders that we understand the financial dynamics of our business and we are in control.

And by the way – it may take several iterations and action plans before we reach an acceptable and achievable forecast. But remember – NO SURPRISES

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