With so much uncertainty looming around the impact of the UK’s exit from the EU, there is a real need for SMEs to take a close look at their cash position and cash management approach.

There are endless examples of organisations that have neglected this aspect of financial reporting, resulting in catastrophe. A robust budget and cash flow forecast can help to avoid pressure points.

Improving your organisation’s cash outlook

  • Annual projections provide more insight into potential issues than three-month projections, and forecasting best/worst-case scenarios for the period can provide a more robust tool for planning.
  • Invoicing customers on a timely basis will reduce the cash cycle and encourage early payment.
  • Asking key customers and suppliers what their plans are for the period after the UK’s exit from the EU will provide an indication of whether these entities anticipate a significant adjustment to their own trade. This can be incorporated into your own plans and projections.
  • Offering discounts to reliable customers during this potentially difficult period or early payment discounts in general could help to alleviate cash flow issues.
  • Requesting improved purchasing terms with suppliers, such as bulk discounts, or extended credit terms could also provide the required cash savings during this transition.
  • Where assistance is needed, approaching banking institutions early where potential pressure points are identified can help to avoid these projections becoming reality. 

Explore your own potential

Many organisations see financial forecasting as a stand-alone practice. However, this should be used as a tool for self-improvement. The ability to predict which costs are to increase or which are to become a larger proportion of total costs should assist in focusing attention on inefficiencies.

A review of an organisation’s systems and processes after producing forecasts should be undertaken to look for any of the following:

  • Duplication of effort;
  • Improper staffing levels performing duties;
  • Inefficient/ineffective IT systems;
  • Lack of disaster recovery process; and
  • Lack of protection from cyber-crime and fraud.

Seek, listen to, and heed advice

Management accountants are likely to have the necessary skills to perform such a forecast but it often helps to obtain an opinion from an objective party. Internal audit functions are not practical for many SMEs but an external provider can provide the function of internal audit and assist in bolstering the reliability of forecasts and systems, whether on an ongoing or ad hoc basis.

 

By Alan Sanders, Audit and Assurance Manager

For further information on the topic, please contact me or your local Thomas Westcott office