The Art & Science of Cash-Flow Forecasting. Part 2

 

• Cash forecasting is the process of identifying short, medium and long-term cash requirements to effectively manage cash risks and add value to the organisation or company.

• While this sounds highly beneficial on the surface (and it is), there can be significant time and effort are required to produce and maintain good, accurate and useful cash flow forecasting data, so it needs to be a deliberate exercise.

• For a variety of reasons we see a low take up and generally poor quality  of cash flow forecasting practices in the market with a general under investment in cash forecasting capability resulting in highly manual, inconsistent and often inaccurate processes.

• SMEs are missing out on a straight forward extra step to understand the cash needs and burn rate of organisations to ride through a crisis such as the one that we find ourselves now.

 

• The Busy Bookkeeping Experience with cash flow forecasting – it’s the exciting & engaging bit!

• Greater understanding and value assigned to financial management and to  bookkeeping and accounting

• Build better and more valuable relationships with financial services providers

• Understand the strategic value of financial management, forecasting and ultimately budgeting

• Develop better idea of the drivers behind important concepts like margin, capacity et al.

 

 

Short-term forecasts are used to manage day-to-day cash requirements by identifying the amount and timing of expected cash receipts and payments.

 

The objectives of short-term forecasts are to:

 

• Ensure there is sufficient cash to meet all short-term obligations and avoid the need for expensive, unanticipated overdrafts or other emergency funding;

• Manage Creditors to fund the business

• Put short-term surpluses to optimal use by ensuring that there are no idle balances sitting in non-interest or low-interest-bearing accounts;

• Optimise cash across the company – ‘the right amount in the right place at the right time’;

• Identify hot spots, track variances and address issues before things get too difficult to control.

 

Generating short-term forecasts enables the business to determine what funds are required in advance, giving the person managing the cash accounts time to:

 

• Look for surpluses from other sources that can be used 

• Look for the cheapest source of funds available in the market to bridge the gap

• Enter the market when terms and conditions are most favourable

• Ensure adequate facilities are available when required.

 

• Its won’t happen overnight but it will happen!

• Address the short term horizon first

• Once the short term view is mastered there will be the confidence to look at the medium and longer term and the benefits that brings