Live or Die Forecasting

Picture the scene. It’s November 2019 and you’re planning you are finalising your 2020

budget. You produce an in-depth 3-way forecast looking at profit and loss, balance sheet

and cashflow forecasting. You sign it off with your key stakeholders - or for smaller

companies you step back and marvel at a job well done.

You don’t need this blog to tell you the carnage that unfolded in 2020 and all your best laid

plans were probably thrown out the window. Forecasts no longer looked a year, three years

of five years ahead, the focus switched to 1 month, 3 months or 6 months. And rather than

your well put together 3-way forecast model, the forecast probably broke down to cash in

bank plus expected cash in minus expected cash out scribbled on the back of an envelope.

These short-term forecasts, termed “live or die forecasts” are so crucial for businesses in

such a fast changing landscape. If you have salaried staff or other committed payments you

have to make then you need to ensure you have the cash when they fall due or you’re going

to run into big problems. Having the knowledge of the cashflow also allows you to make

business critical decisions in real time. Do you need to furlough your staff? Defer your VAT?

Top up your bounce-back loan? Live or die isn’t hyperbole, getting this wrong could finish

your business.

The live or die forecasting is therefore very important as we navigate what we all hope is the

end of the pandemic and recovery. Bringing staff back from furlough and scaling up your

trading activity to previous levels will both put a strain on your working capital, so even as we

move back to normal, these forecasts will be important in showing you what you can and

can’t afford.

Due to their nature, these forecasts fall out of date quickly so they’re something you will have

to do and do again. They take time, especially if you need to get them right. So how can you

take your short-term forecasting to the next level?

? Keep your records up to date! If you have up to date cash, debtor and creditor

records you have a very good start point for your short term cashflow. If you are

operating on old data, you aren’t putting yourself in the best position and you may

count receipts you’ve already had or miss payments that are still due.

? Be realistic! Budgeting can sometimes be used to provide targets and direction for an

organisation. Short-term forecasting is not for this. If you’re only averaging £10,000 of

sales a month in the pandemic, put this in your forecast. Yes, push for a 10%

improvement if you think that’s what you can do, but you should not be - quite literally

- banking on it!

? Prioritise your payments! No matter how much someone may love their job and their

company, not many people can afford to work for free. Salary is probably your

number one payment priority if you have staff. However, if you don’t plan and

prioritise your payments, you may run out of cash by month end. If your net salary bill

is going to be £15k at the end of the month then you need to prioritise £15k for this

bill. Then work out what else you can afford in a priority order.

? Use software! It can be bespoke forecasting software or just good old excel if you

prefer. You may have been doing these calculations in your head, but setting up a

template that you can roll forward each week will help save time and allow you to

forecast accurately. Can’t spare the time? Can you afford not to?

? Iterate and improve! You’re on a weekly forecasting cycle. On Monday, you predict

by next Monday your bank balance will be £32k. It’s £28k. Don’t just start your

forecast again at £28k! Why is it £28k? What did you get wrong? Is it just a customer

who has paid late? Get chasing! Did you pay something that wasn’t in your forecast?


Uh oh. Was that a one-off or is this something you need to add to the forecast for

future weeks? By the time this pandemic is over you should be a forecasting pro!

It’s a tough time for business and well done for getting this far through the pandemic.

But there is still a way to go and a recovery to manage, to yourself to give yourself the best

chance of success.