A guide to third sector trading - WCVA

It’s an idea, but is it business? A guide to third sector trading
1: Getting
started
2: First steps 3: Business
planning
4: Legal and
governance
5: Funding
and
resourcing
6: Financial
controls
7: Managing
growth
8: Management
and
governance
9: Social
enterprise
10: Sources
of support
The cash flow forecast
The importance of the cash flow forecast: The cash flow forecast
(see section 6.3) is the part of the plan which convincingly shows
that the income you generate during a three-year or perhaps a
five-year period will at all times leave you enough money to cover
the expenditure which you may incur. If you are being honest this
will highlight the problems and force you to think through the
business to find solutions.
Preparing the forecast:
• Never be afraid to ask for help if you need it.
• Don’t even think of financial planning without using a computer
spreadsheet for the forecast (even if you have never used one
before, the time you take to learn spreadsheet work will be a
sound investment for the enterprise in the long run).
• Be brutally honest with yourselves about the sums you will
earn and spend. Anyone can make an enterprise look good
with wishful thinking. But this is about reality. If your forecast is
wrong the business may well fail.
• Calculate everything as carefully as you can, and improve the
accuracy each time you revise the cash flow. (For example, the
first time you enter estimates for building rents and insurances
they may be roughly based on figures for a similar organisation;
later you should try to use firm quotes from estate agents and
insurance companies.)
• Statistics for items such as levels of expenditure per customer in
different types of business and in different areas of the country
may be available on the internet. Even when the figures are not
directly relevant to your planned activities, you may be able to
use these to gauge the accuracy of your own calculations.
• Sales and costs are usually closely linked, so improving the way
you estimate sales income will often give you a better idea of
costs and vice versa. More fundamentally, don’t forget that
if you adjust the estimate for sales income significantly your
operating costs are also likely to change.
• Financial forecasts for new businesses are notoriously overoptimistic.
So you actually need to devise a scenario in which
your outgoings are rather higher than you expect (because
there are always eventualities and expenses you hadn’t
budgeted for) and the income takes longer to build up than you
would like (because it does). Then work out how you would
survive and grow in that situation.
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