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Forecasting business finances the right way

Whatever your business, effectively managing cashflow is vital to keeping projects on plan and your business profitable. Here are our top tips for controlling your finances and ensuring your company remains viable.

  1. Create your own very basic cashflow forecast – that you understand 

To ensure you have a thorough understanding of your cashflow, prepare a basic spreadsheet of collectables and payables on a monthly basis, even if you just include the main incoming and outgoings. Something like the below would work – remember it doesn’t need to be too perfect but don’t forget things like seasonal variations.

Jan  Feb  Mar  Apr  May  Jun  Jul  Aug  Sep  Oct  Nov  Dec


  • Sales


Direct costs

  • Stock purchases
  • Subcontractors


  • Rent
  • Rates
  • Light and Heat
  • Advertising
  • Monthly Salaries
  • Employer Nic (call it 10%)
  • VAT payable

Even if you’re not sure of exact numbers for most of these things, take estimates. Every three months make an appointment with your accountant to compare and contrast your cheap and cheerful cashflow spreadsheet with their accurate one. Amend your estimates to put them right, meaning you will be even more accurate over the next period.

As a business owner, it’s your responsibility to keep your finances on track – and this simple step will help make sure you don’t become completely reliant on your accountant or bookkeeper and put you in the top five per cent of pro-active, savvy business owners. 

  1. Do your research. 

Find out as much as you can about your client before you agree to carry out any work. If they are unlikely to pay you on time or not at all, it probably isn’t worth taking the risk, even if they could potentially make you a huge profit. Don’t be afraid to collect references to allay any fears you might have before signing any kind of contract.

  1. Open up a ‘do not touch’ bank account for VAT money

When you invoice for £1000 + VAT = £1200, put the £200 of VAT into a separate bank account. This means that you are not desperately looking for money at VAT return time, and you will also have a little left over as a cash boost.

This approach is extra cautious so you can work with your accountant on what percentage should go into the ‘do not touch’ account.

Just doing this puts you in the top ten per cent of well run businesses.

  1. Penalties and charges

Under pain of death make sure you pay off any credit card in full every month – interest is generally extortionate. Have as a principle that you never pay a late payment penalty for bank or credit card or surcharges for HMRC. These are both equivalent to throwing money down the drain.

If you are paying penalties for failed direct debits, unauthorised overdraft positions and bounced cheques, then in our experience the business is not viable and you need to look at where you are going wrong.

Set yourself a realistic limit, for example ‘if I have three consecutive months where I have paid any of the above charges, then I need to speak to my accountant about what to do next.’ 

  1. Be firm in asking for payments

Make it clear to all clients that you won’t accept late payments and keep to your word if they ever miss their deadlines. Some clients will avoid paying out until they are prompted to do so, so make sure you have a proper system in place to let you know if and when payments are missed. Agree clear payment terms and conditions with clients and send invoices as soon as the work is completed.

The reason this is so important is because just a few late payments can get you into deep trouble with your bank through no fault of your own, so it’s vital not to be too lenient.

  1. Shop around 

In all walks of life, it’s easy to stay with the same suppliers, but you could reduce your overheads and quickly free up some cash by looking for better deals on things like utilities.

Loyalty doesn’t pay much these days so remember to keep an eye on new customer deals which often offer cheaper rates and don’t be put off by thinking it’s ‘too much hassle’ to make the switch.

  1. Don’t forget to factor in tax

Creating your own cashflowspreadsheet as suggested in point one should help with this, but remembering to include VAT and PAYE/NI when forecasting your business finances is extremely important. Don’t forget:

VAT is generally collected monthly but paid to HMRC quarterly – although this can be changed to monthly if you choose to do so.

PAYE/NI deductions are due to be received by the 19th of each month, so remember to take this into account.

  1. Keep channels of communication open

Make sure your clients can contact you so that if any payment issues do arise, they can let you know before it becomes a real issue. Giving them a specific contact within the business who they can speak to and feel like they can trust with problems means you are much less likely to get a nasty surprise on payday. It’s also a good idea to have a positive relationship with your bank so they can be told about any unforeseen changes that might be set to occur.

Keeping on top of what’s coming in and out of your business sounds simple but is the key to success – without forecasting your finances there’s a significant chance your business will fail before it even gets off the ground.

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