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 improving performance and growing businesses 

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Many UK businesses are treating cash flow forecasting as a mere compliance exercise, rather than the vital

financial management tool it truly is, experts warn.

 

Finance specialists at PROMPT Business Strategies have revealed that numerous businesses - even those with

turnovers in the tens of millions - are failing to implement robust cash flow management systems, potentially putting their operations at risk.

"So many clients don't have a data-supported cash flow, or they use it purely as a lender compliance tool.  

But in fact, it's not being managed as well as it should be," said Tatiana, a financial specialist at

PROMPT Business Strategies.    The warning comes as businesses face continued economic pressures and uncertainty, making precise financial planning more critical than ever.

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Beyond Banking Requirements

Cash flow forecasting is often viewed as a box-ticking exercise to satisfy lenders. However, experts insist it should be a dynamic tool that businesses use weekly - or even daily during difficult periods.

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"It is not simply a matter of preparing a document for presentation to the bank", explains Tatiana. "A robust cash flow forecast enhances lender confidence, supports planning, and becomes a crucial decision-making tool."

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The difference between effective cash flow management and a tick-box cash flow proved crucial during the restructuring process of a manufacturing business.

The client was very dependent on debtor money coming in on specific days to pay salaries, lenders, interest, and creditors", said Tatiana. "Throughout their restructuring process, whether approaching banks or private equity investors, everyone relied on that cash flow forecast. They requested it weekly and examined

week-on-week variances."

The detailed forecasting ultimately helped secure the sale of the business by demonstrating its viability under various scenarios.

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Scenario Planning: The Missing Piece

What sets professional cash flow management apart from basic forecasting is scenario planning, according to PROMPT.

"We start with a base cash flow for the business as it is, then create an overlay for scenario planning," Tatiana explained. "Businesses can use this to model growth plans, potential investments, or prepare for challenging situations."

This approach allows businesses to ask critical "what if" questions: What if sales forecasts fall short? What if debtors don't pay on promised dates? What if new payment agreements with creditors are needed?

For businesses considering expansion, scenario planning can determine whether they can afford new initiatives or need external funding. For those facing cash flow challenges, it helps identify potential problems before they become critical.

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Time and Resource Constraints

Many businesses have the ability to create robust cash flow forecasts but lack the time and resources, particularly during financial difficulties.

"When issues appear, it creates a vicious circle," said Tatiana. "You need more time to manage the cash flow, but you also need to focus on operations in order to save the business."

Tatiana explains the approach her firm takes: "We turn it around really quickly in terms of setting the file up and running it for our clients. Then the ultimate goal, what we call a success, is when we train the client, and they bring it in-house to manage it themselves."

While some accounting software packages offer cash flow forecasting features, experts recommend testing their accuracy by comparing projections against actual results and examining how they handle unusual circumstances.

As economic conditions remain challenging, the message is clear: cash flow management is too important to be treated as a cosmetic exercise. For businesses of all sizes, it represents the difference between controlled growth and sudden crisis.