Learn how cash flow forecasting is crucial for surviving slower trading periods.
Why cash flow forecasting helps businesses survive downturns in trade by Futrli guest author Jon Munnery
How can businesses better plan their finances to support them through periods of low consumer demand?
While running a business, you will notice that company cash flow naturally fluctuates to due to factors both inside and outside of your control. You will see a clear shift in consumer demand while trading through different seasons, affected by seasonal trends and the economic climate at the time, such as high interest rates and inflation. Your outgoings will also differ based on your operational activity for that month, such as replenishing stock, paying staff bonuses, or growing your investment portfolio.
While some months will be more cash intensive than others, everything impacts your cash flow which is why cash flow forecasting is essential to helping your business survive quieter trading periods.
Cash flow is the flow of cash that runs in and out of a business. When there’s more cash entering the business than there is leaving, this is known as positive cash flow, and when there’s more cash leaving the business, than there is entering, this is known as negative cash flow.
Cash flow forecasting entails looking ahead to work out how much cash a business will have at any given point in time, taking into consideration spending habits and upcoming liabilities. If the business has a pattern of negative cash flow, this will be factored into cash flow forecasts to provide an accurate future view of the company’s financial position.
High interest rates and inflation
Off-peak/peak trading seasons
National and local events
Limited access to stores (road closures)
Some factors will be out of your control and unforeseeable. However, business decisions and localised events and tends can be pre-planned, factored and accounted for. Capitalising off seasonal trends by launching campaigns in conjunction can help top-up cash flow and make way for a burst of cash. Keeping your ear to the ground about technological developments in your industry can also shape your investment decisions and their timing.
As a business owner, it’s crucial to plan company finances around annual peaks and dips in consumer demand to the best of your ability. For example, the run-up to Christmas is often the busiest trading period for retail businesses, therefore, retailers may avoid non-essential outgoings during this month to maximise cash flow.
According to the ONS Retail Sales Index, November and December contribute towards more than 20% of the year’s sales for retail businesses. On the flip side, the slowest month where consumer demand plunges and retailers see the lowest levels of activity is January.
By pooling cash in advance of the months which are tightest and building reserves, retailers can withstand the downturn in trade and prepare for the next surge in sales. Cash flow forecasting requires strategic planning and knowledge of the industry that you operate within to seek out unique opportunities to generate consumer demand and top-up cash flow.
Devise forward-thinking cash flow forecasts in seconds with Futrli to reveal your business’s liquidity at any given moment in time. Conduct detailed scenario plans to identify potential liquidity bottlenecks and take preventative action before it’s too late. Always stay one step ahead by running a truly predicted business.
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