In 2005, OBT guest blogger Colin Dunn undertook a survey of 1,500 business owners asking what additional help they needed from their accountant.
At that time, 58% of respondents said that they needed more help from their help in managing their cash flow. Colin writes:
I suspect that some 10+ years later, that number, if anything, would be higher. And yet so few businesses have a live, working, cash flow and budget.
Why is that the case?
Creating a three-way forecast including P&L, cash flow and balance sheet is not a trivial exercise. Furthermore, the forecast on its own can often get relegated to the shelf if not used in a regular, meaningful way.
For example, imagine this scenario taking place between a business owner and their accountant:
- Present a review of the past three years’ performance of the business
- Have the business owner set some quick targets for the next 12 months
- Ask the business owner this critical question – how are you going to achieve those targets?
- Go into detailed planning to determine what needs to be done to move towards the targets
- Ask the business owner what attention needs to be paid to seasonality and non-P&L related cash demands on the business (e.g. capital expenditure, owners’ drawings)
- Recommend a cash management program to ensure that those needs can be met within the plan.
Your cash management program might then include a cash flow planning meeting, the creation of the three-way forecast, weekly monitoring and alerts, monthly or quarterly meetings and accountability around achieving the plan. It is a very different value proposition than trying to ‘flog’ a cash flow forecast.
It is a very different value proposition than trying to formulate a standalone cash flow forecast.
So how do you quickly and accurately prepare the forecasts? The key is the accountant’s ability to connect with the business’ online accounting systems to obtain real-time information against which to monitor the business’ forecasts.
This is a great example of the power of cloud technology. Cloud accounting provides a view of financial information in real-time. There’s no need to buy expensive software and install upgrades and your financial information is available on your PC or Mac in the office, at home or on popular mobile devices – anywhere, anytime. And the beauty of cloud accounting is that you can invite a number of trusted people, such as your accountants, to collaborate online.
Creating a workable three-way forecast including P&L, cash flow and balance sheet is one of the best starting points. Ask OBT”s friendly Business Solutions team how on 5462 2277.
About the author: @ColinDunnACA is a long-time esteemed colleague, friend and Director of PANALITIX Pty Ltd. PANALITIX influences small to medium sized businesses around the world via their accountants by providing business improvement content and technology. Colin is a Chartered Accountant with 28 years’ experience in working with both business owners and accounting firms. Web: www.panalitix.com. Blog: www.colindunnblog.com