Every small and medium-sized business should prepare cashflow statement and forecast, says Mark O’Rourke, Managing Director, Bibby Financial Services Ireland

As Irish businesses battle to deal with an utterly changed economic landscape, many are in a fight for survival. In April Minister Paschal Donohoe said he expected Ireland’s economy to shrink by 10.5% this year and, while the hope is for some recovery in the second half of this year and into 2021, a long road remains ahead.

Returning to our previous low levels of unemployment will be no less challenging, and memories of the financial crash will loom large in the minds of businesses and government figures alike.

However for a business such as ours, which was formed just prior to the last recession and played a key role in supporting SMEs through it, that period also provides important lessons which should be borne in mind now. Foremost among them is the benefits of ensuring strong cashflow, which has always been the lifeblood of any business.

When times are good it allows a business to pay overheads, staff wages and other financial obligations, but with the onset of the Covid-19 pandemic, we’ve seen just how quickly cashflow can be undermined. And once cashflow dries up, businesses quickly begin to suffer, even close for good.

Therefore while it’s always been important to understand the source of your cashflow when running, sustaining and growing a business, it’s now more important than ever before.

In Association with

SMEs are rightly concerned about what the future holds, both as the current pandemic continues and in the difficult economic circumstances that are likely to follow.

But by taking a number of practical steps to maximise the health of their cashflow now, they can put themselves in a better position to manage costs, reduce financial and operational risk and improve operational efficiency.

For instance, every small and medium-sized business should calculate a cashflow statement and forecast, identifying what the cash needs of the business are. These will typically include fixed costs, such as rent, insurance, telephone and broadband services, and variable costs including taxes, PRSI and operational expenses.

Having a forecast will allow you to more easily see where potential savings can be made, such as by reducing or postponing non-essential services. It’s advisable to create a new cashflow plan every month or at least quarterly, depending on your circumstances, and this will help better control cashflow.

Payment Delays

Of course, you’ll want to consider your suppliers’ own financial position as well. The Covid-19 pandemic has affected businesses the world over, with few sectors immune from its effects. Good communication between businesses is now all the more important, so be conscious that your suppliers may be struggling as well.

The Covid-19 pandemic has meant that many businesses are experiencing payment delays, and this inevitably has knock-on effects throughout the wider supply chain as the cash conversion cycle lengthens.

In addition to the financial supports on offer from government via the major banks – such as the Covid-19 Working Capital Scheme – cashflow finance specialists are on hand to advise and provide a flexible source of funding that will best suit your business requirements.

These options include invoice finance, which acts as a source of funding by releasing the value of a business’s unpaid invoices. Because it is not a loan, it doesn’t involve any additional debt, helping to keep cashflow healthy. Equally, unlike taking out a business loan, there are no fixed monthly repayments involved

Ultimately, improving your business’s cashflow is a crucial step in surviving and thriving, allowing you to realise new opportunities, take on new orders or expand and invest in your business.

• Mark O’Rourke (pictured is managing director at Bibby Financial Services Ireland. Bibby’s funding portfolio includes confidential invoice, trade and export finance, foreign exchange services, bad debt protection and specialist funding for a range of sectors.