Cash flow management has always been essential to the financial stability of a business, but many businesses struggle with it. Considering the recent pandemic, changes in the workplace, and economic uncertainty, cash flow management has become even more crucial in business. That means if your accounting firm hasn’t yet considered offering cash flow management services, now is a good time to reconsider the value it can bring to your clients.
Cash Flow Forecasting and Budgeting
Budgeting helps companies manage their month-to-month expenditures. It’s a chance for you to help your clients make their goals clear and set their expectations for the future. It will also help you better understand your clients’ needs and the direction they are taking while you assist them in reaching their goals.
Adding cash flow forecasting can be even more powerful. Budgets are tactical. They help set limits and manage expenses. Forecasts, on the other hand, are strategic. They inform the type of long-term decision-making that helps a business grow. When business owners are worried about financial uncertainty, cash flow forecasting can help them avoid feeling blindsided by unknowns and find a path forward.
A strong financial forecast can be the core advisory service you offer. While reporting is important, forecasting provides the road map and a firm basis for your advisory services. By comparing your forecasts to reality, you can help your clients identify problems in the business. This road map will help you determine if your clients can eliminate unnecessary costs to free up cash or if they will need to seek investment from current or new investors to cover future costs.
The future is uncertain, and scenario planning will help your clients prepare for the different possibilities. Every business will face multiple forks in the road in its future, including opportunities that could be profitable and obstacles that will have to be mitigated. By creating multiple scenarios based on an initial budget, you can test the impact of various favorable or unfavorable events on your client’s business and help them find the right path forward in any possible future.
Basic scenario planning involves three scenarios, though complex businesses will have more:
- Base-case: The expected outcome
- Worst-case: The most severe outcome
- Best-case: The ideal outcome
The first step in scenario planning is identifying the risks and other factors affecting your client. Second, estimate how each of these variables will affect your client’s business. Once you have these steps completed, you can build your scenarios. The scenarios will then help you and your client understand how to navigate any one of these alternate futures.
Cash Flow Management
In a period of financial uncertainty, cash flow management is one of the most important advisory services you can provide for your clients. If “cash is king,” cash flow is the lifeblood that keeps the business alive. If a business doesn’t have cash, profits don’t mean much. Many “profitable” businesses have gone bankrupt because there was more cash going out than coming in.
You can start by providing clients with a view of their cash inflows and outflows. That will allow them to see what is happening with their cash and improve cash flow in the short term. This is a simple step and can be done with a custom financial dashboard in accounting business analytics software like PathQuest BI.
Your clients need positive cash flow to generate profits. Employees and suppliers have to be paid so that they can make products or provide services for their customers. Giving them an overview of their cash flow will allow them to discover where they can restructure their business to grow and increase profits.
Another area your firm’s accounting and business experience could be applied is your clients’ pricing model and their terms and conditions. By reviewing how and what they charge, what margins are possible, how they bundle services and products, and what their customers expect, you may find hidden opportunities. This type of review should be done at least once a year, and it is a great add-on to your other advisory services. Many businesses have used the same pricing strategies for years, while competitors have adapted to a changing marketplace. By comparing what your clients offer to what is available from their competitors, you can help them not only find potential cash flow but also be more competitive.
Capital and Debt Review
Debt, capital requirements, and items on the balance sheet affect cash flow now and in the future for most businesses. If a business focuses purely on trading cash inflows and outflows, these may be overlooked.
When it comes to capital, you must ask your client a simple question. What are your business’s needs? For the business to reach its goals in the future, does it need investment, either from existing or new investors? You should also be aware of unexpected shareholder draws and how they will affect your client’s cash flow.
Another service you can provide is a regular review of your client’s terms, rates, and overall debt profile. By examining these variables, you may be able to right-size your client’s loans to free up more cash flow. You can also make a big difference with simple periodic debt reviews.
The business landscape is changing, and more and more businesses are looking to their accounting firms to provide them with the necessary insights to grow their businesses and withstand potential economic downturns in the future. This could be a big opportunity for your firm if you currently provide cash flow services. These services can be a stepping stone to a deeper relationship with your clients, giving them better outcomes and making your firm more profitable. If you are struggling to find the time, outsourcing your daily bookkeeping tasks is a great option to free you to focus on expansion. To learn more about your options for outsourcing your bookkeeping services, reach out to PABS for a consultation.