Short-term cashflow is a priority for any business in financial difficulty but too many firms fail to update their cashflow forecasts, according to KPMG associate director Heather Bamforth.
Speaking at an Abta Travel Finance Conference in London, Bamforth noted rising costs and the increases in employers’ National Insurance Contributions and the minimum wage from April along with the reduction in business rates relief are “impacting all parts of financial statements”
She said: “Everybody has a problem with cash, not just one size of business.”
Bamforth argued “it has become difficult to predict what will happen” saying: “It’s getting more difficult to predict trends [and] you can really go to town on scenario planning because you don’t know what could happen in six to eight weeks.”
She warned “uncertainty creates risks” and said she is called in to help “usually when cash is running out.
Businesses with cashflow problems need a weekly cashflow balance, she argued, saying: “Monthly balances don’t show fluctuations in purchases, in costs of sale, in overheads [and] businesses fail when they run out of money. Keep on top of costs at all times.”
She suggested “nobody knows what their short-term cashflow is”, noting “accountants focus on long-term financial modelling” and said: “Not having effective cashflow forecasts is very common.
“I can’t tell you how many times I’ve heard a business say it has a great cashflow forecast and it has not been updated for six months.”
Barmforth advised businesses in cash trouble to “be open and honest with stakeholders – lenders and shareholders, creditors, regulators, suppliers”, arguing: “If you blindside a funds provider, you ruin a key relationship.”