Cashflow is the lifeblood of our businesses. With some of the government coronavirus business packages set to end or start phasing out – most notably JobKeeper – now more than ever is the time to plan and manage your cashflow before we reach the “stimulus cliff”. 

Lance Rubin CEO and Founder of Model Citizn joined a Banjo webinar recently to talk about how cash flow analysis can help SMEs make better decisions for the future of their business. 

Lance explained that cashflow modelling is a process of designing and constructing a decision-making tool for the various scenarios that can impact your business.  

Also known as scenario analysis, it can help you plan mathematically for business risks and see what the cashflow outcome would be. Scenario planning is about looking forward, not backwards, using numbers.

Some typical scenarios could include what happens if: 

• your debtors don’t pay you on time
• you need to delay payment to one of your creditors
• you have to pay a creditor early because they are in difficulty

It also helps you pinpoint if you have a sensitivity to one particular variable in your business, for example: staffing levels, or one large debtor. 

Do you know how long your current cash reserves will last? 

What impact will JobKeeper tapering off over the next 6 months have on your business? 

Will you be affected when some of the other stimulus measures end?

In the light of this consider what are your business options now, and what might those look like if you did something different. It could be pivoting your business to a new market, reducing staff hours or numbers, or sourcing materials offshore. You can play with the different scenarios, and while not all of them will work for you, it will give you ideas and choices. It’s good to have options.

Having the ability to play with this is key. However, it does need to be well set up in the first place. You can use a variety of tools on the market, or simply start with a spreadsheet. Various types of cashflow analysis can be produced from the information you already have, such as: income statement; balance sheet; cash flow statement.

Lance demonstrated via live charts the effect on the cash flow position of pulling various business levers. If we make changes to ‘x’ or ‘y’, what impact will that have on our cash? 

Ideally, work with your accountant, who can help with the compliance and legal knowledge. Most importantly, know what you want to find out from this. Start with your historical cash flow; look at your profitability; get it all put in a spreadsheet that you can change. 

This could be vital if you’re looking to borrow or top up your loan. Traditional lenders often just look at historical data, which is only an insight into the past. While many of the new wave of business lenders do take into account past data, they also place a strong focus on future cashflow analysis. This will also be true of other stakeholders in your business. 

Being able to explore potential scenarios will help to reduce uncertainty you may feel about the coming months as you navigate the changed business environment. While nothing can provide complete certainty, cashflow modelling can help reduce anxiety about the future.