After the rate rise: will your cashflow forecast carry your business through the next 12 months?
The Reserve Bank of Australia (RBA) has increased the cash rate by 25 basis points to 4.60%, adding to the variable-rate debt costs and business cashflow pressure. The RBA cited persistent inflation, rising global energy prices and economic uncertainty. For business owners, the key question is how the rate rise will affect customer payment times, supplier costs, working capital and margins over the next 12 months.
This is particularly relevant across regional Australia because seasonal income, commodity prices, weather conditions, freight and fuel costs do not always move together. A business may remain profitable on paper while its available cash tightens quickly. The practical test is whether its cashflow forecast identifies when that pressure may arise and gives management enough time to respond.Â
The direct effect is clear: variable-rate debt costs more, while proposed borrowing for machinery, land, property or expansion may deliver a lower return.
The indirect effects are harder to spot and can be more damaging. Higher finance costs may coincide with slower debtor collections, greater seasonal funding needs and less room to absorb unfavourable production or price outcomes.
In my experience working with regional businesses, cash pressure rarely comes from one cost alone. Higher fuel, freight and fertiliser costs may coincide with delayed seasonal receipts, weaker livestock prices, slower customer spending or longer payment times. Individually these shifts may be manageable, but together they can materially increase funding needs.
Cash pressure often becomes a timing problem before it becomes a profitability problem. A profit and loss statement explains what has happened, while a well-maintained cashflow forecast shows when the business may run short of funding capacity.
NAB’s latest quarterly business survey reported weaker profitability and continued pressure from input costs. While conditions vary by industry and region, the findings reinforce the need for businesses to test whether their current cashflow assumptions still reflect the environment in which they are operating.
The critical test is not whether the forecast extends last year’s numbers for another 12 months. It is whether the forecast exposes when cash pressure may emerge, which assumptions are driving it and what management can do in response.
Updating the repayment figure alone can create false comfort. It captures the visible cost of the rate rise but not the changes that may occur around it.Â
A stronger approach is to review the broader cashflow forecast and test the assumptions behind it.
Consider how the next 12 months could affect:
The value of a forecast comes from the assumptions behind it.
For example, a business forecasting $300,000 in monthly customer receipts may expect most invoices to be paid within 30 days. If payment timing extends to 45 days, a significant portion of that cash moves into the following month while wages, supplier payments and loan commitments remain due. The annual revenue forecast may not change, but the business may need more working capital to cover the timing gap.
A single forecast is rarely enough because it presents one set of assumptions as though it were the expected outcome. A more useful approach compares three views: a base case showing what management currently expects, a plausible downside case showing where cash pressure could emerge, and a response case showing the actions management would take if conditions change.
| Scenario | Purpose and assumptions |
|---|---|
| Base case | Expected conditions based on current rates, known costs, confirmed revenue and existing plans. |
| Downside case | Tests plausible pressures, such as delayed receipts, lower prices, weather disruption, higher costs, slower sales or longer debtor collection, to show the effect of moderately tougher conditions. |
| Response case | Shows how actions such as pricing changes, staged capital spending, adjusted stock purchases, deferred discretionary spending or revised finance could reduce the downside impact and ease cash pressure. |
There is no universal revenue target, cash balance or profit margin. Each business needs warning signs that reflect its circumstances and are specific enough to prompt a decision.
Management might set a minimum cash balance, a maximum debtor-days measure, a margin threshold or a limit for drawing on working capital facilities. Each indicator should have an agreed response, a responsible person and a timeframe for action.
For example:
During 25 years in banking and commercial finance, I have seen that early, informed conversations give both management and lenders more options. A forecast cannot guarantee finance approval, but it can clearly explain what has changed, quantify the likely effect and demonstrate the actions the business is prepared to take. That preparation gives a lender greater confidence that management understands the position and is responding before the funding pressure becomes urgent.
The rate rise is a reminder that conditions can shift quickly. The greater risk is relying on a forecast that assumes nothing else will change. Management should use the forecast to test assumptions, consider alternative outcomes and make informed decisions before pressure develops.
Businesses cannot remove uncertainty, but they can decide how often to test their assumptions and what to do when conditions change. For businesses exposed to seasonal or volatile conditions, monthly review can identify rapid changes in debtor timing, margins or working capital early enough to adjust plans and speak with lenders before funding pressure limits the available choices.
Julieanne Lawrence is Head of Virtual CFO at Boyce and has 25 years of experience in banking and commercial finance. She supports regional businesses with clearer cashflow forecasting and financial reporting through Boyce’s Virtual CFO service.Â
