Take Rochat Installations Sàrl, in Morges. Six employees, a building trades business, a gross payroll of CHF 36'000 per month (manager's salary included). In March, the manager notes that the quarterly AVS (old-age and survivors' insurance) statement, the VAT and the rent all fall due in the same week. At the same time, a client owing CHF 28'000 has not paid an invoice issued 60 days earlier.
Over the financial year, the company generates a profit of CHF 62'000. Yet at the end of May, the bank account shows a negative balance of CHF 11'000. The mechanism is simple: profit is measured over twelve months, whereas salaries, VAT and contributions are paid on precise dates. A positive accounting result does not prevent an overdraft. Cash is the money actually in the account on the 30th of the month.
This article follows this company step by step. The six steps below make it possible to build a 12-month plan. A three-month table, to copy into a spreadsheet, accompanies the process. For the basic definitions, see our article on cash flow forecasting, which sets out the general framework.
Indicator
Value
Context
Annual profit
CHF 62'000
Accounting result for the year, measured over twelve months
Bank balance at end of May
– CHF 11'000
Overdraft despite a profitable year
Unpaid client receivable
CHF 28'000
Invoice issued 60 days earlier, collection carried over to June
Opening cash balance
CHF 48'400
At 28 February: bank CHF 41'200, PostFinance CHF 6'800, petty cash CHF 400
Annual profit
ValueCHF 62'000
ContextAccounting result for the year, measured over twelve months
Bank balance at end of May
Value– CHF 11'000
ContextOverdraft despite a profitable year
Unpaid client receivable
ValueCHF 28'000
ContextInvoice issued 60 days earlier, collection carried over to June
A profit of CHF 62'000 over the year does not prevent an overdraft of CHF 11'000 at the end of May
Key takeaway
Profit is measured over twelve months, cash is checked on the 30th of the month: a positive accounting result does not prevent an overdrawn account.
Source: Rochat Installations Sàrl case (Morges), running example of the article on cash flow forecasting
1. Set the opening balance using the actual accounts
A forecast starts from a verifiable figure. Record the balance of each account on the last day of the month just ended: main bank account, PostFinance, foreign-currency accounts, petty cash. Use the account statements, not the general ledger, because the latter includes entries that have not yet been debited or credited.
For Rochat Installations, the statement of 28 February gives: bank CHF 41'200, PostFinance CHF 6'800, petty cash CHF 400. Opening balance: CHF 48'400.
The rule: the opening balance of a cash flow plan corresponds to the sum of the bank balances actually recorded, never to an estimate. Any error at this stage carries through to the following twelve months.
Action for today: open a spreadsheet, create one column per month and enter the consolidated bank balance in the opening cell.
2. List the receipts according to their actual due date
The most common pitfall is to place turnover in the month of the invoice. The money arrives later. Calculate your average payment period: divide the balance of trade debtors by annual turnover, then multiply by 365.
At Rochat Installations, debtors amount to CHF 118'000 for a turnover of CHF 960'000. The average period is 45 days. An invoice of CHF 40'000 issued in March is therefore collected in mid-May, not in March. If a notoriously slow-paying client is involved, increase that client's period individually.
Article 102 of the Code of Obligations (RS 220) provides that the debtor is in default upon the due date, or after a reminder where no term has been agreed. A payment period stated on the invoice, for example 30 days, therefore provides a contractual basis for sending reminders.
Assumptions for the running example, excluding VAT, in receipts: March CHF 70'000, April CHF 60'000, May CHF 52'000 (the client owing CHF 28'000 is carried over to June).
Action for today: export your list of debtors and, for each open invoice, enter the expected collection date.
3. Cost the fixed outflows
Fixed outflows can be forecast precisely, because they do not depend on the month's activity: net salaries, social charges, LPP (occupational pension scheme), rent, leasing, insurance.
AVS/AI/APG contributions (old-age and survivors', disability and loss-of-earnings insurance) amount to 10.6% of the determining salary, shared equally between employer and employee (5.3% each). Unemployment insurance adds 2.2% (1.1% employer share). Source: Federal Social Insurance Office (OFAS/FSIO), rates in force, to be checked at www.bsv.admin.ch. Vaud family allowances, financed by the employer through the fund, amount to CHF 300 per month for a child under 16, CHF 400 from the third child (Vaud law on family allowances, to be confirmed with the affiliated fund).
A Sàrl manager who pays himself CHF 8'000 per month bears approximately CHF 1'000 of AVS/AI/APG/AC contributions, employer and employee shares combined. To this is added the manager's LPP, which must appear in the plan: without this line, the manager's salary cost is understated.
Fixed monthly outflows of Rochat Installations:
Net salaries: CHF 29'500
Social contributions (AVS/AI/APG/AC, family allowances, accident insurance): CHF 4'900
LPP, employer share and employee share: CHF 2'400
Rent and service charges: CHF 4'200
Vehicle leasing: CHF 1'800
Insurance and other fixed costs: CHF 1'500
Monthly total: CHF 44'300.
Action for today: take the latest payslips and the latest compensation fund statement to set these lines.
Item
Amount
Share
Net salaries
CHF 29'500
67%
Social contributions (AVS/AI/APG/AC, family allowances, accident insurance)
CHF 4'900
11%
Rent and service charges
CHF 4'200
9%
LPP (employer share and employee share)
CHF 2'400
5%
Vehicle leasing
CHF 1'800
4%
Insurance and other fixed costs
CHF 1'500
3%
Total
CHF 44'300 per month
100 %
Net salaries
AmountCHF 29'500
Share67%
Social contributions (AVS/AI/APG/AC, family allowances, accident insurance)
AmountCHF 4'900
Share11%
Rent and service charges
AmountCHF 4'200
Share9%
LPP (employer share and employee share)
AmountCHF 2'400
Share5%
Vehicle leasing
AmountCHF 1'800
Share4%
Insurance and other fixed costs
AmountCHF 1'500
Share3%
Total
AmountCHF 44'300 per month
Share100 %
Fixed costs of CHF 44'300 per month are two-thirds absorbed by net salaries
Key takeaway
Net salaries (CHF 29'500) represent approximately 67% of the fixed monthly outflows of Rochat Installations: this is the line to secure first in the cash flow forecast.
Source: Running example Rochat Installations Sàrl, Morges (fixed monthly outflows, step 3 of the cash flow forecast)
4. Include tax and social security due dates
These outflows are irregular and concentrated over a few weeks. They are to be entered in the month of actual payment.
VAT: the return is in principle half-yearly for taxable persons applying the effective method. The net tax rate method also requires a half-yearly return. A quarterly return is possible on request, in particular in the case of a regular VAT credit. Payment falls due within 60 days of the end of the period. Source: Federal Tax Administration (AFC/FTA), www.estv.admin.ch. Standard rate in force: 8.1%.
VAT collected is not income. It belongs to the Confederation. Rochat Installations receives CHF 70'000 including VAT in March, of which approximately CHF 5'250 is VAT, which will have to be paid over.
Cantonal tax instalments: the cantonal tax administration (ACI) of the canton of Vaud issues provisional instalment bills, the schedule for which appears at www.vd.ch/themes/etat-droit-finances/impots/. Enter the due dates shown on your bill.
AVS fund statement: depending on the monthly or quarterly instalment set by the fund, the outflow may reach several thousand francs in a single payment.
Action for today: enter in the spreadsheet the three dates and amounts from your latest VAT return, your latest instalment bill and your latest AVS statement.
Cash flow table to copy: March to May
Here is the table for the running example, in CHF, realistic scenario. Receipts are expressed including VAT, the VAT due being paid separately.
May remains barely positive. The slightest additional client delay puts the company into overdraft. Yet over the financial year, it remains profitable: margins build up over the year, while payments come in fits and starts.
Action for today: copy this table, replace our figures with yours, and add one line per month up to twelve.
5. Build three scenarios and set the alert threshold
A single plan rests on a single assumption. Three scenarios cover the uncertainty.
Realistic scenario: the observed payment periods continue. Prudent scenario: receipts are delayed by 15 days and reduced by 10%. Tight scenario: a major client pays 60 days late and receipts fall by 20%.
Applied to Rochat Installations, the prudent scenario gives an end-of-May balance of minus CHF 9'000. The tight scenario reaches minus CHF 25'000.
Then set an alert threshold. A rule used in practice: keep a balance at least equal to one month of fixed outflows, i.e. CHF 44'300 here. Below this threshold, an action is triggered: chasing debtors, negotiating a payment schedule with a supplier, requesting a credit limit from the bank before it is needed.
Action for today: duplicate your sheet twice, apply the shifts above and mark the alert threshold in red on each.
6. Update every month and compare forecast with actual
A cash flow plan only has value if it is kept up to date. At the beginning of each month, replace the forecast figures for the month just ended with the actual figures, then move the horizon forward: the plan remains a rolling 12 months.
Add a variance column. If actual receipts are 15% below forecast for two consecutive months, your payment periods have changed: recalculate the average period from step 2.
Set a recurring appointment: the third working day of each month, allowing time for the bank reconciliation. Thirty minutes is enough.
Action for today: put this appointment in your diary for the next twelve months.
Pitfalls to avoid
Confusing profit with liquidity: a positive result does not imply a positive balance on a given date.
Forgetting the manager's salary and LPP: these outflows weigh on every month, even where the manager defers his drawings.
Ignoring the gap between invoicing and collection: forecasting the receipt in the month of the invoice overstates the balance by several tens of thousands of francs.
Projecting VAT collected as income: it must be paid over to the AFC (Federal Tax Administration).
Never updating: a plan not compared with actual figures loses its reliability within a quarter.
For pension contracts, payslips and the manager's salary certificate, our team can check the consistency of the flows before they are entered in the plan.
Open a spreadsheet this evening
The 12-month plan can be built in one evening for its first version. Fill in the first three months from the bank statements, the latest social security statements and the list of debtors. Add the two scenarios, then set the date of the first monthly review.
An approximate but monitored forecast is worth more than a sophisticated model abandoned after two months. Once the first quarter is solid, extend it to twelve months and link it to your annual budget.
"This article is purely informative and does not constitute legal, tax or accounting advice, nor a personalised recommendation; as each company's situation is unique, we invite you to consult a qualified professional before making any decision relating to your cash flow forecast."
FAQ
The accounting result measures the income and expenses of a period, regardless of payment dates. Cash measures the money actually available in the accounts on a given date. A profitable company can be overdrawn.
Have your cash flow plan validated
Our team reviews your 12-month plan, your social and tax due dates and your alert thresholds. A 30-minute discussion, with no obligation.
