Cashflow guide

Cashflow Guide

This section aims to help you get through the tough times, with tools, insights and offers to keep you on top of your finances and one step ahead.

Cashflow Guide


    <p>As the old business adage goes, the topline’s for vanity, the bottom line’s for sanity and cashflow is reality. And it’s fair to say that reality has been hard with the impact of COVID-19. Businesses are having to adapt and the challenge is certainly not over yet.</p>

    Building a cashflow projection

    <h3>Why cashflow forecasts are important</h3> <p>As they say, cash is king, and the availability of cash is at the centre of everything you do, from paying your bills to funding growth in your business. Having a good understanding of how your cashflows within your business will enable you to get the balance and timing right to ensure you can always meet your commitments and help you to plan for the future; whether that be for the purchase of an asset, debt repayment or scaling your business to take it to the next level.</p> <h3>Key points to consider when building a cashflow projection</h3> <p>Looking at the health of your business starts with cashflow. This is an essential aspect to ensuring you can meet your commitments and helps you make informed decisions about how you run your business. A cashflow is just that, when and how much money will be coming into your business and when and how much money will be going out of your business, and what cash you have available to manage the potential timing differences of both.</p> <p>You may choose to use a spreadsheet to record this information and there are plenty of tools available to choose from. You can also use your existing accounting software like Xero or MYOB to utilise the data you already have at your fingertips. If you really want to ensure you are asking the right questions of your cashflow, consider getting a second opinion from your accountant or bookkeeper, asking them to put it through its paces. The adage about the end product being only as good as the data entered is absolutely true in this instance.</p> <p>Before you start, you need to understand your businesses operating cycle. When do you get paid for your sales and when do you need to pay your expenses? The timing of these are crucial to understand your monthly cash position and what potential funding lines you may need to bridge any gaps. Think about the following:</p> <ul> <li><p>How can I speed up the receipt of my income?</p> </li> <li><p>What terms do I currently provide my customers?</p> </li> <li><p>How do my customers pay? Do I need to provide alternative channels (i.e. digital solutions) or offer prompt payment discounts or a reward system to encourage faster payment?</p> </li> <li><p>How can I extend my payment terms?</p> </li> <li><p>What terms do I currently get from my suppliers?</p> </li> <li><p>How do I pay my suppliers? Do I need to extend terms or pay through a different channel to be closer aligned to the timing of my income being received?</p> </li> <li><p>What are my fixed and variable costs?</p> </li> </ul> <ul> <li>Think about which expenses are fixed and cannot be changed and which ones are variable - deep dive into both expense types to see what can be eliminated, reduced, renegotiated, or terms extended for. This will aid in reducing overall costs and smooth out cashflow troughs by moving expenses into the period where your income is received.</li> <li>Is my business exposed to any seasonality that I need to factor in? Consider holiday periods when you may close or become much quieter. On the flip side are there months when you will receive the lion share of your income? Think about how that will be allocated to cover costs at a later date.</li> </ul> <p>The impacts of COVID-19 with either reduced or total inability to trade like we did before has affected most business. When preparing your cashflow forecast, factor in what these impacts may have been for you. Think about:</p> <ul> <li><p>How has your industry and geographical location been impacted? Are you reliant on overseas tourists? How will a prolonged border closure affect you and your income? What percentage decrease will there be on turnover and net profit and for how long? What are you doing to tap into other markets?</p> </li> <li><p>What is the expected recovery time to normal levels or new levels (i.e. what will sales look like post COVID-19)?</p> </li> <li><p>Do you have any outstanding receivables? Are you able to collect these (what do your aged payables and receivables look like)?</p> </li> <li><p>What plans do you have in place to support your business through this time?</p> </li> </ul> <h3>What do you need to include in your forecast?</h3> <p>Start with what cash you already have available (your bank balance), then you will need to get a handle on what you think your income and expenses will be, normally month by month. You can use your historical financial data to get a gauge on this. Think about how long you will be forecasting for, is it a 12-month period or is it more appropriate to look at a longer term forecast so that you can get a real feel for trends and future funding you may need?</p> <p>Gather as much detail as you can on your outgoings - these need to be as accurate as possible so you get a clear view of what your bottom line is going to look like. If your forecast includes increased income from&nbsp;<a href="" target="_blank">additional employees</a>&nbsp;or expansion then this will come with extra cost - make sure to factor this into your forecast. Don’t forget to include GST in your numbers.</p> <h3>Just starting out? Great!</h3> <p>It’s more than likely you won’t have the historical numbers to base your forecast on so where do you begin? You may like to look at some&nbsp;<a href="" target="_blank">industry benchmarking</a>&nbsp;to get a feel for where you should be aiming and remember that expert advice could also be invaluable to setting you on the right path. An accountant is a good starting point, but you could also consider a&nbsp;<a href="" target="_blank">business mentor</a>&nbsp;too. It takes a village!</p> <p>So, you’re the new kid on the block? Now is the time to build your&nbsp;<a href="">business plan</a>&nbsp;to tell your story and link it to your cashflow forecast. That will give you the what, why and how you will achieve your aspirations.</p> <p>&nbsp;</p>
    <h2 style="text-align: center;">TIP</h2> <p>If you are worried about not having cash set aside for your tax and GST commitments as they fall due, it’s a great time to talk to your bank about setting up a separate account and a payment plan.</p>

    Cashflow tools and resources

    <h3>How to use a cashflow forecast</h3> <p>Understanding when your money will come in and go out will help you plan for the months ahead from a cash perspective. Predicting when your peaks and troughs will be helps you to plan and avoid financial difficulties. Give some thought to sensitising your forecast so you have an idea of a pessimistic environment, a middle of the road environment and an optimistic environment. You are then showing yourself, investors or the bank that you have considered all market conditions. Hope for the best and plan for the worst.</p> <p>You will be able to compare your forecasts to your actual numbers - this will allow you to keep on track and quickly adjust as and when needed, or to be able to clearly identify any bumps in the road and provision for them.</p> <p>Plan, plan, plan…a forecast will allow you to consider that new asset purchase, extra employees or re-imagine your growth strategy.</p> <h3>How to use a cashflow forecast when talking to your bank</h3> <p>Once you have identified your periods of potential cash shortfall, you may need to talk to your bank about providing some working capital cover (i.e. an overdraft facility). To help the bank understand your requirements ensure your cashflow forecast contains the following:</p> <p>Details of the figures and data used and why; these are often referred to as assumptions.</p> <p>The bank will need to understand your thought process and methodology used to calculate the numbers.</p> <p>Some background about you, your business and the environment you are operating in. Has this changed?</p> <p>What has caused the need for cashflow assistance? Are you in growth mode or have you experienced market disruption?</p> <p>What is your business plan?</p> <p>Whether you are a start-up business or have been in market for many years, all businesses need a plan which is ever evolving. It would be useful to share this with your bank so they can understand your vision. Note that the bank may come back to you to ask for additional information to ensure they understand your business and goals/plans.</p> <p>Use our&nbsp;<a href="" target="_self">ASB business plan</a>&nbsp;resource to support your cashflow forecast</p>
    <p>We have provided resources below to support you with your cashflow forecasting.</p> <p><a href="" target="_self">ASB cashflow template</a></p> <p>Thank you to KPMG for collaborating with ASB to provide guidance on a simplified cashflow template</p> <p>This cashflow template has been made available for convenience only. ASB reserves the right to amend, update or withdraw this template at any time and without notice. ASB accepts no responsibility or liability for its suitability (for any person or purpose) or the adequacy, accuracy or completeness of its content or the information it produces. Your use of the cashflow template is at your own risk.</p> <p><a href="" target="_blank">Government cashflow forecasting tool</a>&nbsp;provided by MBIE</p>

    Where to get support

    <h2>Chartered accountant</h2> <p>Your first port of call is your existing financial accountant or bookkeeper. If you don’t have an existing relationship, we are happy to refer you to someone suitable from our networks upon request.</p> <p>When it comes to the important business decisions like improving your cashflow, managing risk or planning for growth, a Chartered Accountant can help make a difference. Experts in their field, they maintain high professional standards and provide the advice you need to help drive your business to a sustainable future.</p> <h2>Bookkeepers</h2> <p>The modern bookkeeper covers all the standard bookkeeping tasks but harnesses technology to automate as much of the bookkeeping work as possible. This means that the focus for the modern bookkeeper has changed from data entry to:</p> <ul> <li>Helping the business understand its financial information.</li> <li>Improving business systems.</li> <li>Validating the data and reporting key information about business performance.</li> <li>Managing technologies and systems to ensure they are performing as required.</li> <li>Ensuring that the business remains compliant with legislation.</li> </ul>
    <h2 style="text-align: center;">TIP</h2> <p>Find your local Chartered Accountant using the NZ/AU&nbsp;<a href="" target="_blank">Chartered Accountants</a>.</p> <p>Find an&nbsp;<a href="" target="_blank">ICNZB Certified Bookkeeper</a>™</p>
    <h3>Go digital</h3> <p>If you already have a cloud-based accounting tool such as Xero or MYOB, look here first to use the cashflow forecasting functionality. If you want your business to work smarter and faster, cloud accounting software is a wise investment. Working in the cloud will give you a better overview of your finances and improve collaboration with your team.</p> <h3>Key benefits</h3> <ul> <li>Helping the business understand its financial information.</li> <li>Improving business systems.</li> <li>Validating the data and reporting key information about business performance.</li> <li>Managing technologies and systems to ensure they are performing as required.</li> <li>Ensuring that the business remains compliant with legislation.</li> </ul>
    <h2 style="text-align: center;">See other offers from our&nbsp;<a href="/businesshub/offers.html" target="_self">digital cashflow management partners</a></h2>