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Cash remains king as businesses gear up for growth

Author: ICAEW Insights

Published: 17 Apr 2023

Why finance functions tightened their cash management and forecasting during the pandemic – and how those good habits have remained.

For much of the past decade, disruption has become the relentless undercurrent of business life. From Brexit and the global pandemic to the invasion of Ukraine and the energy crisis, companies have endured unprecedented upheaval. With each of the myriad challenges, one constant has remained for business leaders – cash is king.

To stay afloat and profitable, finance teams have had to focus their efforts on maximising their cash flow and tightening their forecasting approaches. Since the various pandemic lockdowns ended, and with that the government support loans, disruption has continued – meaning few organisations have been able to take their eye off their cash position and the task of forecasting their future.

Tarka Duhalde is Group Financial Controller at IRIS Software Group, and has overseen the restructure of several finance teams as well as system transformation and implementations during and since the pandemic. She says: “With so much volatility still in the market, we have continued with the approach to cash-flow management and forecasting that we developed during the pandemic.” 

At the height of the pandemic, Duhalde says IRIS was managing its cash flow more closely and re-forecasting at a more granular level with greater regularity, rather than focusing primarily on a P&L forecast. “We also undertook more scenario planning and performed stress testing to identify our break-even point,” she adds.

Arif Kamal, Chief Finance and Operations Officer at London law firm Hunters Law, took a similar stance: “Cash is absolutely at the heart of any business, or any entity,” he says. “Careful cash management is critical. The crisis has led a lot of businesses to think more prudently about the future, to better prepare for unforeseen factors impacting the businesses, because when the crisis hit not many businesses were prepared for what was going to happen. There was a lot more focus on cash during the pandemic, and cash optimisation remains the focus today.”

Indeed, research by software provider BlackLine found that more than six in 10 (62%) respondents said understanding cash flow in real time would become more important for their company over this year, but nearly all (98%) of those surveyed said they would like to be more confident about their visibility over cash flow. The report, Instability & Volatility, surveyed 1,483 C-suite executives and finance and accounting professionals in medium-sized and large organisations in the US, Canada, UK, France, Germany, Australia, and Singapore.

Jo Copestake, Sales Director at accounting software company Xero, points out that for smaller businesses the issue of managing cash is even more acute: “The impact of the pandemic and the ongoing economic uncertainty mean that staying on top of cash flow is more important than ever. In uncertain economic times, small businesses are being squeezed from all sides and late payments – alongside sky-high inflation and energy costs – continue to create cash-flow issues for the small business economy.”

At Hunters Law, Kamal has for a long time had a daily cash report sent to management to review collections and cash forecast. He’s also a great advocate for strengthening communications with suppliers rather than pursuing the legal route for late payments. At a previous employer Kamal introduced a structured repayments scheme for clients, and has done the same at Hunters.

Although focus on cash flow management remains laser sharp for most organisations, approaches and technological adoption has evolved. Advances in machine learning and application programming interfaces are forecast to drive increased functionality and connectivity, with 100% visibility becoming a viable prospect.

Many businesses remained cash-flow positive through pandemic conditions, but they were far from thriving. This, says Copestake, accelerated the adoption of new technology and digital tools to help them better manage their cash flow and keep operations going. “There’s no doubt these tools have been invaluable as they navigate the latest market conditions too,” she says.

With forecasting occurring more regularly within organisations since the pandemic, the task features high on the workload of finance teams. New research by American Express asked which activities take up most of their time and resources, and found that forecasting came top of the list (38%), followed by reporting and control (36%), strategic planning or financial analysis (34%) and transaction processing (33%).

Finance functions have increased how frequently they rebudget or reforecast – with a third (33%) expecting to do this monthly in the year ahead, compared to 28% who did this as frequently prior to the pandemic, according to the AMEX research.

Kamal says: “Prior to the pandemic, business unit heads were providing irregular forecasts as and when they felt like doing so, but now it is a requirement that on a monthly basis each business unit provides forecasts both for billings and for expected cash collection, with assistance from the finance team.”

The AMEX report of finance leaders at larger UK businesses, Data, digitisation and dynamism: How UK finance leaders are redefining their role, found that 43% say they expect to rebudget or reforecast monthly or even more often to help remain agile.

“Finance teams are well-practised at adding value to their businesses – it’s in their DNA,” says Stacey Sterbenz, General Manager, UK Commercial at American Express. “But what’s clear is that opportunities remain to make efficiency gains, with signs that their full potential is being held back by less strategic transactional activity. Higher quality data, and the insights it can provide, will help finance teams become more strategic and flexible as they respond to a rapidly changing world.”

And with 85% of UK finance leaders saying more accurate forecasting is critical to their success, it’s understandable that adoption of better tools is desirable.

Duhalde says: “It took time to develop a model that worked exactly as we wanted it to, as we were effectively building it from scratch given we’d never historically had a tool to support our cash-flow forecasting to such a level. We have created a model which allows us to absorb the initial extra work created efficiently. This ‘new’ approach has been really beneficial to us given the ongoing economic uncertainties. We now have a better understanding of what shocks we can withstand and what levers can be pulled, if needed.”

Accountants and business advisers may be able to help businesses make improved use of technology. As Copestake says: “These challenges have driven the adoption of new tools to help businesses better manage their finances. For example, artificial intelligence-backed tools can help businesses to project and predict the amount of cash they will have in the next seven or 30 days. The rise of bank feeds also means businesses can automate the import of transaction data from their bank account into their cloud accounting platform, giving businesses a real-time view of their cash-flow position. There has additionally been a big rise in the number of cash flow and forecasting apps that are available to help businesses, which can also be integrated with their accounting technology.”

With a focus now on growth, cash flow is as critical as ever.

Kamal says: “Financial directors and CFOs are looking at holistic planning and guidance to ensure they are matching daily requirements of cash, along with long-term strategic investment, because long-term growth is essential and for that you need to plan carefully, and cash is key to make those plans happen. We do a rolling 12-monthly forecast as well, to make sure that we are on target to meet our strategic objectives.”

For most companies, the priority now is robust cash planning, not just for the next month or three months, but for the next year and beyond. It’s unlikely that organisations will ever return to looser cash management irrespective of economic conditions, especially with the prospect of real-time 100% visibility of cash in sight.

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