Why annual cash flow forecasting is advisory gold

Written by Richard Francis, CEO of Spotlight Reporting. Richard Francis, CA is Founder & CEO of Spotlight Reporting which offers advanced reporting, cashflow forecasting, dashboard and multi-entity analysis to accountants and organisations globally.

An essential but underdone advisory service that CPA’s should be considering is cash flow forecasting.

Why? It’s high value to the customer and after all, we all know that without liquidity, businesses wither and die and should be high-value to the accountant too in terms of fees and potential follow-on work.

Every annual financial cycle is an opportunity to sit down and set goals and project numbers forward with your significant clients. Looking forward is not only important, but often essential to identify and avoid any looming business issues or, more positively, for identifying new opportunities too.

This work was a key part of my own advisory practice growth and could be for yours too. My basic proposition to the accounting industry is that every business client deserves a cash flow forecast.

Every business client deserves an understanding of cash and liquidity for better decision-making – and your care and attention as a trusted advisor to “make it happen.” So don’t wait to be asked for help by a client in cash flow trouble or reactively when the bank needs some projections – start thinking now about what cash flow-related services you could offer.

Annual Cash Flow Forecasting

This is the single most obvious and useful accounting output. It should also be the most profitable and valuable service, if done efficiently and sold with a ‘value-based’ mindset.

Forecasting doesn’t have to be a big annual exercise, although a new trading year is a natural starting point. Periodic or ‘rolling’ forecasting – bringing in actuals and extending out the future view based on latest data and expectations – keeps the information fresh and relevant for good decision-making.

Scenario Planning

Scenario planning can you to easily create multiple scenarios from your initial budget. The power of this is that you can test various theories or ‘what if?’ scenarios for your clients; this is gold!

As an advisor, you and your clients will face many opportunities or obstacles to consider, plan for and/or mitigate. With a budget and cash flow forecast locked in, running scenarios, pricing changes, new revenue lines and margin improvements are easy and illuminating.

Cash Flow Management

Short-term cash flow management is the really low-hanging fruit service. Having a 90-day view of inflows and outflows gives the client some ability to micro-manage for cash flow positivity.

Pricing & Debtor Process Reviews

An often overlooked opportunity is to advise clients on their pricing model and Terms. These two areas, which encompass what and how they charge, what margins are achievable, how they bundle and promote and what expectations they set with their customers are fruitful areas to explore, advise and take action on.

Debt & Capital Reviews

Most businesses carry debt, have capital requirements and/or have material Balance Sheet items that impact on cash flow now and into the future. These can be forgotten if there is too much focus purely on trading cash inflows and outflows. Key areas of advisor focus can be the ‘right-sizing’ of existing loans, management of shareholder drawings, and future capital or investment requirements.

Final Thoughts

My hope is that accounting firms will embrace cash flow forecasting and budgeting work as a standard service for clients of substance, capturing value for themselves and their clients. Competitive advantage will accrue for those that make the ‘cash advisory’ move.

6 replies
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