• Covid-19: Financial Forecasting

Covid-19: Financial Forecasting

16 April 2020

Original content provided by BDO Northern Ireland

Throughout this crisis we have been in daily contact with our client base to provide objective and independent advice to assist them in developing their plans.  Understandably, cash flow is one of the main concerns at this time and we have therefore been helping businesses to forecast their performance in the short to medium term.  In some cases, the purpose of this exercise is to establish how long existing cash reserves will last, in others the forecasts have formed the basis of an immediate funding request to the Banks. 

In preparing forecasts/projections, it is paramount that they are robust and adequately ‘stress test’ the expected performance.  Such ‘stress testing’ needs to be done on a line by line basis (covering revenue and costs), in terms of both the profit and loss and its expected cash impact.  Items such as debtor days and supplier payments need to be carefully considered, particularly as for many businesses a small variance in either will have a significant impact on cash flows. 

The various Government schemes released in recent weeks also need to be considered when preparing projections, be it CBILS/CLBILS, the Coronavirus Job Retention scheme or the deferral of HMRC payments.  

When these forecasts are being prepared as part of a funding proposal to a Bank, we would stress the need for such proposals to encompass the following essential areas, as set out in our ‘5 Point Plan’;

  • Viability and Sustainability – a high level overview of the recent financial performance of the Business.  Such information is primarily setting the context for the proposal, and importantly should show the Business was viable prior to the Covid-19 situation;
  • Critical Business Planning – the business should show evidence of having already undertaken a critical business planning exercise that shows its position in the current crisis has been fully considered.
  • Key actions being undertaken – this highlights the decisions being taken by the business in relation to its operations and particularly its cost base;
  • Preparation of Cash flows – In such proposals this should be a set of projections (profit & loss, balance sheet and funds flow) that clearly outlines the expected performance of the business, and demonstrates how this links to the funding being required in the short to medium term.  The period of the projections will be driven by the nature of the request (for example a short term overdraft will differ from a loan request which will take three years for a Business to repay); and
  • The Recovery Plan - The proposal should reflect a sufficient period to show how the business expects to perform in the recovery period and beyond, clearly explaining the key assumptions to this.

We have seen challenges for some businesses in demonstrating their funding requirement through financial projections, which can then undermine their Banking proposal and lead to ill afforded delays.  To help avoid such delays, we have developed a detailed financial model which already reflects the current schemes available at this time.   

In these difficult and pressured times we would like to share an illustrative example of this model with you in order to assist you in projecting the performance of your Business going forward, and to ensure it will strongly underpin any requests for banking assistance at this time.   



We are happy to provide the full model to you on request.