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Cashflow forecasting

ICAEW shares Covid cash crisis management tips


As we emerge from the pandemic, the ICAEW  published nine principles for finance professionals to enhance cashflow processes, analysis and forecasting.

5th Oct 2021
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The pandemic prompted a boom in cashflow forecasting unlike anything the profession had experienced before. AccountingWEB Insight research recently confirmed forecasting and planning software as the fastest growing accounting software segment during 2020-21.

Lockdown regulations were accompanied by a flurry of business interruption and Bounce Back Loans that stimulated the use of specialist cashflow forecasting and management tools as accountants raced to help struggling clients prepare emergency loan applications.

As the cash crisis eases, will these tools become part of the daily working processes of the profession? Or was the forecasting surge a temporary blip prompted by a sudden demand for one-off forecasts to secure Covid loans?

Businesses need regular cash forecasts for other reasons than to complete loan applications - for example to see if they can keep up when repayments start falling due. Building awareness among clients and taking the first step towards getting them onto a proper cashflow forecasting regime can be tricky, but is an important part of building more resilience into an economy that is still recovering from the blindside hit from Covid-19. 

ICAEW’s cashflow keys

To encourage broader awareness about planning and cashflow forecasting, the ICAEW recent outlined some fundamental principles for finance professionals in response to the pandemic. The concepts are summarised below for quick reference.

Principle 1: CEOs should take overall responsibility for cash management if there is a risk of business failure

  • Financial decisions are fundamental to the survival and growth of a business, which requires the CEO to uphold consistent coordination and communication across the whole team.
  • Maintaining relationships with customers and suppliers from a senior level is crucial for sustaining healthy cashflow in and out of the business.

Principle 2: Ensure responsibilities, reporting lines and staff cover for all cash related matters are clearly understood throughout the organisation

  • This includes communication, payment and expense authorisation levels, maintaining cash controls, monitoring details of government support, and reporting.

Principle 3: Set up regular cash meetings involving those with insight on predicted cash movements

  • The right people could range from the CEO to the accounts receivable supervisor - frequency depends on the level of urgency but should ideally be weekly.

Principle 4: Build up forecasting effectiveness by combining business experience with the best available evidence and improving forecasting processes

  • The better the cashflow forecast, the greater the chance of survival and the scope of credibility in engaging with stakeholders.
  • It’s best to weigh information considering sources, anecdote versus statistics, and timeliness - be objective, use professional scepticism and confront the facts whilst being aware of confirmation bias.

Principle 5: Design cashflow reports to support critical business decisions and funding applications; therefore, they should be understandable by non-accountants

  • Use the direct method where possible, showing inflows and outflows - show cash at the start of period, cash in and cash out, leaving a surplus.
  • Try to use easy to understand language that non-financial managers can get to grips with.

Principle 6: Maintain controls over cashflow reporting

  • Reconciling reports to bank statements will allow you to quickly spot any discrepancies - ensure the reports are reviewed by someone other than the preparer.
  • Increase your frequency of regular reconciliations and check their consistency with other management information. 

Principle 7: Increase frequency of reporting and consider whether to report on monthly, weekly or daily cash movements

  • Look ahead to scope out if there are known, large payments and identify process improvements to increase the speed and accuracy of production.

Principle 8: Maintain underlying data in as much detail as possible – this enables maximum flexibility in reporting

  • Get the most out of your systems - always be on the lookout for add-on modules and extras.
  • You can also develop a database of material forecast cash movements to support your cashflow reports.

Principle 9: Follow ICAEW’s Twenty Spreadsheet Principles when developing cashflow reports and forecasts.

  • Principles include independent review, short and simple formulae, rigorous testing, built-in checks and alerts, and systematic backup and version control. The full list of spreadsheet principles is available from the ICAEW website.

The past 18 months has highlighted the importance of cashflow forecasting; for many, it has become integral in ensuring businesses’ survival during the uncertainty of the pandemic. To recognise the importance of cashflow forecasting, the AccountingWEB Software Awards has dedicated an entire category towards Cashflow Management and Credit Control for the best software providers in this field. You can cast your votes for this award here.

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