Cash Flow

You’ve been asked to produce a cash flow and you don’t know where to start.

I have been using Excel spreadsheets since 1995 to build cash planning models for clients. If you give me the opening balance sheet, and your sales forecast and an idea of your costs, than I can produce a model for you.

This will be done with variables so that you can see how sensitive the cash requirement might be to an upturn or downturn in order entry or to a change in customers’ credit terms. When banks are looking to lend, they like these ‘what if’ tests to show not one outcome, but a range of scenarios to see highest and lowest likely levels of working capital needing to be financed.

The ‘goal seek’ function in excel (that was called ‘backward iteration’ when I first met financial models in Supercalc many years ago) can be very helpful, for example, in deciding prices in order to yield a specific return.

You could be applying for a grant, to assist with a capital investment programme, or you may need a budget so that you can compare ongoing results with what you have planned.

After you can see the benefits of budgeting you can then go on to produce three year or five year plans. This can help you take the business forward in many ways, in particular resource planning.