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When Updating Cash Flow Forecasts Is A Must! [Survival Depends On It]


Most people hate sitting down with their small business accountant and updating their cash flow forecast and for many once a year would seem too much! However, there are times when you really should update and fine tune it or measuring budget versus actual maybe pretty much meaningless.

Now I am not saying you need to update each month unless it is really warranted. here are some examples when you might consider rejigging your targets. With any changes as listed below, remember that your cash flow forecast will have new parameters for key performance indicators such as:

  • debtor days;
  • supplier days;
  • inventory days;
  • gross profit margins;
  • expense levels;
  • borrowings;
  • dividends/owner drawings.

Your small business accountants will be able to assist you in these areas particularly if they specialise in business advisory services and growth.

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Figure 1: Preparing for your next move will mean reviewing your cash flow targets.


1. Business Environment Has Changed

If your business environment has changed during the year due to some external event then there is no point keeping the existing cash flow forecasts in place. The Global Financial Crisis would be a good example of this where for some businesses no matter what plans they had for the year, their budgets would be totally inaccurate.

2. The Business Is Taking A New Direction

If you have established that the current direction of the business is just not working the by taking a totally new direction will mean you need to redo your cash flow forecast. What you started with in July might be totally different in December. If you have worked out you want to move from wholesale to retail or wish to attack a new geographical area, then you will need to sit down and change the revenue and expense levels.

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Figure 2: What targets do you have and will they need adjusting?

3. Aggressive Growth Planning

Deciding to go out and get aggressive with growth will usually mean spending a lot more money so that your existing three way budget will be materially errant. Going for growth will usually mean:

  • higher salaries (sales team);
  • higher marketing costs;
  • bigger premises;
  • larger borrowings.

There also could be a longer lag time where the increase in corresponding sales takes place.

4. Key People Have Left The BUSINESS

Ideally your business will not be reliant on key people so that not only will it be business as usual but also a higher small business valuation from a business valuer will take place. However, there is no doubt that sometimes you may have a key person(s) who are gun salespeople and responsible for a large spike percentage of sales.

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Figure 3: Will key people leaving your business change your forecasts?

5. Product/Service Mix Changes

During the 12 month period you may find that some products or services are experiencing massive growth or high rates of decline for whatever reason. Naturally these will usually have different profit levels and contribution margins so these will need to be updated in your projections. Maybe a fad or a change in government regulations could be the cause for the changes but in any case, reflecting differing cash flow amounts will be a must for you to keep track on what your new bank balance each month will look like.


Updating a cash flow forecast might be frowned upon but expected changes of 15% to 20% due to new conditions should be the trigger for updating so you can see where your business and its lifeblood (cash) is headed.

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