Cashflow forecasting #1 - Know your cash position

By Martyn Shiner | July 9, 2019

As a business owner, do you know your cash position right now? If not, why not? This post explains why its important and what to do about getting this vital piece of information.


If you’ve read the Manifesto for Business Improvement on this blog you’ll quickly notice that 3 of the 6 “Rules” are related to cashflow. This is because, ultimately, generating cash in both the short and long term must be the goal of every business if it is to prosper.

Further, since your business is fast moving you need to be able to forecast what your cash position is going to be for at least the next 13 weeks or a lack of cash will quickly overwhelm you. I make no apologies whatsoever for this assertion as I have seen the principle tested to destruction in many businesses…. including my own.

Step 1 on the road to being able to produce a reliable rolling cash forecast is to know how much you have in the bank, or what your overdraft is, as of now.

Do it DAILY!!

I know this sounds radical, but you need to know where you are from a cash standpoint EVERY DAY without fail.

You should be processing payments made and cash received every day - Do NOT leave this to your accountant or bookkeeper to process perhaps three weeks after the event…. get somebody internal to do it or, if no one is available, do it yourself!


If you are using one of the ‘on-line’ SME accounting systems you can get a bank feed automatically posted into the system and just ‘explain’ the transactions so they are allocated by the system, which is very efficient for a micro business.

Assuming you are a slightly bigger entity with proper sales and purchase ledgers, or no auto-feed is available, you can go on-line through your bank’s website….

  1. look at the statement for the previous working day and make sure your accounting system reflects ALL payments and receipts - some (especially overseas receipts) may be posted by the bank after close of business so it is important to check
  2. confirm the closing balance from the previous day tallies with your accounting system
  3. check the current day’s postings and enter these so that you have an up to date balance as at NOW in your accounting system - this way you can make sure you haven’t exceeded your overdraft facility if you have one or work out what you need to draw down from factoring (see below)
  4. take a look at ‘next working day transactions’ so you can see what is upcoming - most bank systems have this facility which will tell you what will be posted tomorrow, which is especially helpful if you have a customer who pays by BACS (a UK payment system that uses a three day cycle to clear) or you pay significant items by direct debit or standing order

When you get a statement from the bank make sure you do a bank reconciliation within your accounting software, especially if you pay or receive cheques that take a few days to clear. If you have lots of transactions I’d suggest doing this more often… perhaps weekly or at a period end.

Things to watch out for….

Multiple bank accounts

Many businesses, will have additional bank accounts

  1. to facilitate significant payments or receipts in a foriegn currency
  2. Paypal or other ‘merchant accounts for receiving payment through websites

These should be managed in exactly the same way as the main account.

Invoice Finance

Factoring, sometimes called Invoice Discounting or Invoice Finance, is a very popular way of funding businesses that gives a lender the security of ‘owning’ the future cash stream of a business by having the invoices assigned to them. This complicates things a little for business owners trying to get a handle on their cash position - if you use this type of funding it is even more important that you know the up to date balance as it is effectively your overdraft. Factoring accounts are relatively easy to control if the daily management procedure above is followed.

For all practical purposes you should treat the factoring account as just another bank account within your accounting system - the ‘funds-in-use’ or ‘funds-drawn-down’ against the factoring facility is equivalent to an overdraft. When payments are received from customers they should be posted to this account which will reduce the funds-in-use. Conversely, drawing down from the facility will be treated as a payment out of the account into your main account to clear any ‘overdraft’ balances, which will need to be done daily. Funds-in-use on the factoring account will go up by the amount of the draw down.

Company Credit Cards

If you treat any company credit cards as just another bank account (albeit one in permanent overdraft) you won’t go far wrong. Don’t wait for the month end statement but check every day just like other accounts - most bank systems allow you to do this so it shouldn’t be a problem.


To sum up….

  • perform a DAILY match of every bank account in your accounting system to the feed or web site of your bank
  • watch out for currency, merchant or Factoring/IF accounts
  • total all accounts to get an accurate picture of funds available to your business

And finally…. if you want to know more about how we can help you improve your business through better systems and improved information then do please get in touch via the Contacts Page.