How to be a better cashflow and budgeting adviser

SMEs need good cashflow and budgeting if they want to survive. Accountants have more tools at their disposal to help this happen.

Cashflow problems caused by a lack of funding or late payment can cause immense stress to owners and directors of small and medium-sized enterprises (SMEs). 

Thankfully, accountants have more options to help SMEs ensure their current assets are enough to cover its current liabilities. They can advise on cashflow management to provide a realistic budget for the short-, medium- and long-term, using accounting software that provides a real-time view of all money owed and when it is due.

Making a budgeting plan

When it comes to budgeting, accountants can work with an SME to create a plan based around its sales forecasts. It involves looking at its turnover in previous years and analysing competitors and the market. Any plan should help an SME to better understand its projected expenses, including annual and one-off costs. Once this is done, the business can work to a credible budget. 

Andrew Bradley, director of Cantium Accountants in Kent, helps clients prepare formal budgets, cashflows and identify pressure points. 

“We tell them to be aware of, and plan for, times during the year when there will be pressure on cash. They should talk to the bank about an overdraft facility and, if they are considering an investment, think about the impact this will have on cashflow,” he says.  

Understanding financial health

Accountants and in-house finance teams can help SMEs have a better understanding of the financial health of their business. Colin Hewitt, co-founder of the cashflow app Float, says accountants should not be afraid to charge for cashflow forecasting advisory work. 

“A lot of clients would be happy to pay more money if they can see the value,” he says. “There are automated solutions like Practice Ignition, which allow accountants to offer added value services like forecasting and reporting for a clear price.” 

Here are the essential steps you should advise businesses to take when it comes to cashflow and budgeting. 

1. Set up credit control

SMEs must have an effective credit control system in place to oversee cashflow. A credit controller can chase overdue invoices and take enforcement action when required.

When it comes to forecasting, many SMEs use the direct method: looking at upcoming bills and invoices, as well as historical actuals, to predict when cash will move in and out of an organisation.

This approach tends to work best when an SME client is assessing if it can afford to pay staff or other bills, and what might happen if payments are delayed. 

2. Utilise technology

It’s never been easier to get paid quickly and easily by your customers. Encourage SMEs to use instant payment technology if appropriate to their business. Apps such as GoCardless even offer invoicing in instalments.  

SMEs can take advantage of machine learning and API integrations to connect current and historical data. When data is processed manually, it can be very labour intensive to correct errors, says Dermot Murray, general manager at data connection and reporting system Workiva.

“One of the most beneficial things an SME can do is invest in automation to link quantitative or qualitative values across multiple reports,” he says. “This connection minimises misreporting risks, saves money and improves data consistency for the future.” 

3. It’s all in the data – and how you read it

Many businesses still report financials manually, and this can lead to fragmented databases, invoicing errors and reputational damage. 

Rebecca Freeman runs Lagom Finance, a digital accounting practice for SMEs. She is also head of user experience research at Receipt Bank, which has a machine learning pre-accounting tool for finance professionals.

She agrees that automating data entry is crucial. “Many SMEs are still looking at data retrospectively, meaning any cashflow or financial budget is more than likely already out of date as it is created,” she says. “When you add to this the time taken to input and sort financial data, the lag is increased dramatically”

“With real-time data, you have to understand how up-to-date it really is,” says its head of operations, Jo Sutton. “Accountants are used to viewing the data from last month part-way through the current month. So, it requires a different mindset to work with data that is up-to-date as of close of play yesterday but does not include monthly adjustments,” she explains.

Case study: The cashflow-conscious SME – Zeal Creative

The nature of Zeal Creative’s business means it must manage its cashflow effectively and budget carefully. 

As a shopper marketing agency based in London and Manchester, it runs retail promotions and competitions for high profile brands such as Nestlé, Kellogg’s, Pringle and McCain. Its work includes having to fund travel costs upfront for winners’ holidays and other prizes. 

The agency uses the accounting and job details system Paprika, which integrates contact management, job costing, estimating, resource planning, time and expense entry, client billing, forecasting, accounting and budgeting. Finance manager Boaler says the whole company uses the system, which provides one point to input data and view it in real time. 

Boaler adds: “We also use historical data so we can see similarities between clients and learn from any budgeting issues that might have happened before. It could be around the time and costs allocated to particular projects so we can improve our budgeting and cashflow in future.” 

Case study: The Cashflow adviser – Aidan Smyth

At chartered accountants Peter Hodgson and Co, partner Aidan Smyth is eager to help his SME clients manage their cashflow and budgeting. “Businesses need cash, otherwise they fail very quickly,” he says.

Smyth’s advisory service for an SME starts by helping a client prepare a business plan for the next financial year while also looking longer-term. “Once we know what the business’s plans are, we convert them into financial plans and budgets and assess them for viability and reasonableness. We then do a sensitivity analysis to ensure that even in the worst-case scenario, the business can continue.”  

He says it is essential this process happens early so an SME can identify its cash needs well in advance, recognise funding requirements and work with lenders and investors. “It is also important the business monitors actual performance against planned performance on a timely basis and reassesses the viability of its plans. We have relationships with banks, specialist lenders and investors who are invariably willing to help, provided the business case can be justified, and the numbers make sense.” 

8 tools to maximise cashflow and boost budgeting 

  1. Paprika  –Integrated job costing and accounting   system, paprika-software.com 
  2. Float – Real-time view of a business’ cashflow, floatapp.com
  3. VT Transaction+ A fully-featured accounting and bookkeeping package, vtsoftware.co.uk/tranplus 
  4. Futrli -AI-powered cashflow software, futrli.com 
  5. Fathom – Turns accounting data into business intelligence, fathomhq.com
  6. Receipt Bank – Productivity tool for accountants and bookkeepers, receipt-bank.com/uk
  7. Workiva – Cloud platform for connected reporting across accounting and finance, workiva.com/uk 
  8. Practice Ignition  – Smart proposal system incorporating payment facilities, practiceignition.com 

Further reading:

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