How cash flow forecasts and reporting can help your business through turbulent times

Recession concerns have been growing due to rising interest rates and economic uncertainty. This article explores cash flow reporting and forecasting strategies that leaders use to bolster operational sustainability in volatile times.

By Yang Shuzhen, Director of Regional Accounting, BoardRoom Group

Why cash flow reporting is vital for business success

The preparation of cash flow reports promotes good financial management in several ways.

Importantly, they gauge your business’s ability to generate cash and use available cash to meet its obligations – both of which are necessary for surviving and thriving amid an economic downturn. Put simply, if you don’t have enough money available, you cannot pay for expenses.

The proper tracking of cash inflows and outflows is critical, as it enables businesses to:

• gain real-time insights into their financial position;

• create data-driven cash flow forecasts for nimble, informed decision-making and forward planning;

• identify potential cash shortfalls and take proactive measures to address them;capture opportunities for investment, expansion or increased remuneration where excess cash reserves are identified; and

• have transparent, trust-building discussions with lenders, investors and suppliers.

The requirements for cash flow forecasts and reporting in Singapore

According to the Singapore Financial Reporting Standards, understanding an entity’s cash flows helps users of financial statements evaluate its cash generation capability, needs, and timing. The objective of this Standard is to require the provision of information about the historical changes in cash through a categorised cash flow statement encompassing operating, investing, and financing activities.

Businesses can assess their cash flow situation via the direct method of reporting, which records actual cash receipts and payments, or the indirect method, which adjusts the net profit or loss for noncash items. They can also monitor cash inflows and outflows in their day-to-day operations to understand their net cash flow and forecast future cash availability.

Companies must report their cash flows under three main categories: operating activities, financing activities and investing activities. This allows your finance team and stakeholders to understand cash inflows and outflows for each category and make decisions from there. For example, investors can decide whether they want to continue investing, depending on their risk appetite.

The difference between unlevered free cash flow and levered cash flow

Free cash flow refers to the amount of cash your business has after accounting for its capital expenditures. It can appear on your balance sheet as either:

• Unlevered free cash flow (UFCF) – This is the amount of money your business has available before meeting its financial obligations (eg. debts, expenses, taxes and interest payments). UFCF shows your gross free cash flow and is an important figure for investment bankers, potential buyers and executive staff.

• Levered free cash flow (LFCF) – This is the amount of money your business retains after meeting recurring short- and long-term financial obligations. LFCF shows what cash can be put towards investments and building equity and is of interest to bankers, buyers, internal staff and board members.

Using these two metrics in your cash flow reporting can help you manage your finances effectively and tailor your cash flow statements for particular stakeholders. However, many Singaporean businesses prefer to assess their cash flow based on the liquidity of their assets.

Best practice for elevating your cash flow management

To support financial stability and growth in times of economic downturn, consider implementing the following cash flow management practices within your organisation.

• Reduce expenses and optimise credit terms. Assessing your credit terms can be useful for addressing predicted cash shortfalls. Many businesses stretch payment timelines with vendors while softening credit terms with customers. Other potential strategies for increasing available cash include securing additional funding sources, diversifying revenue streams and exploring alternative vendors.

• Optimise excess funds. Explore various market instruments to make the most of your liquid cash. These may be investment opportunities that offer lower interest rates, shorter maturity periods and easy cash access while also generating additional incidental revenue.

• Employ robust accounting practices. Employing comprehensive accounting practices that encompass meticulous cash flow tracking, transparent reporting, and forward-looking projectional forecasting is indispensable for navigating financial complexities and enables data-driven decision making.

• Use proper accounting software. In contrast to non-specialised software like Excel, advanced accounting programs like BoardRoom’s partner platform, Xero, leverage automation and AI technology to streamline financial processes (e.g. manual checking), reduce human error and provide precise, real-time visibility of cash flow.

• Regularly analyse cash flow data and projections. Historical cash flow statements and cash flow forecasts can provide valuable insights into your financial performance. They can empower you to develop realistic budgets, set achievable financial goals, pinpoint areas for improvement, and make informed decisions about new investments, risk mitigation and resource allocation – resulting in greater control over your financial outcomes.

Partner with a professional accounting team

Engaging outsourced accounting services can help you improve your cash flow management while ensuring compliance with Singapore’s financial reporting standards. For example, many businesses perform their bank reconciliation monthly. This can create difficulties for your finance team, who may need to manually check thousands of transactions and investigate missing or incorrect deposits at the end of the month (particularly if your business receives daily deposits).

BoardRoom’s Accounting Services team often recommends that clients do their bank reconciliation weekly instead. For businesses whom we’re helping to manage vendor payments and track funds coming in from customers, doing bank reconciliation weekly, or even daily, gives them a more regular picture of cash inflow and outflow. This is especially the case if they use a POS system, which often results in a timing difference between transactions recorded in the POS system and the bank statements.

Enhancing your cash flow tracking with strategies like this is just one way that external accounting support can help make your cash flow management easier, faster and more accurate. If your organisation operates across borders, an international accounting and tax firm can also assist with complex processes such as foreign currency cash flow management.

Enhance your cash flow reporting with professional support

During turbulent times, businesses that prioritise robust cash flow management gain a competitive advantage, enabling them to weather economic storms and emerge stronger in the face of adversity.

About the Company

BoardRoom Group is Asia Pacific’s leader in Corporate and Advisory Services with more than 50 years of track record. Headquartered in Singapore, BoardRoom Group is ranked amongst Forbes Asia’s Top 200 Companies under a Billion. With a strong presence in the region and a direct office presence in Singapore, Malaysia, Hong Kong, China and Australia, we offer a full suite of corporate business solutions including company incorporation, corporate secretarial, share registry, employee stock ownership plans (ESOPs), accounting, tax and payroll. Visit www.boardroomlimited.com.