Starting Direct Cash Flow Forecasting

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In most of my CFO jobs, there was no doubt that I needed visibility to projected Cash Flow activity. Our manual processes helped us explain the ups and downs of available Cash, but offered little help in forecasting future flows. Predictability? None.

Yes, we made sure the Collections process was tightly managed and often considered slow-paying AP to get an acceptable Cash balance at the end of the period. But, we needed a method of forecasting Cash Flow, of seeing Cash Flow on a more transactional level so the timing of key business decisions could be influenced.

When we designed and implemented a system to establish a weekly Direct Cash Flow management process, we knew we could manage the business on a more insightful level.

So, how do you get a Direct Cash Flow Planning and Management process going?  Here are a few tips that may provide a roadmap on how to get there.

  • Identify the Critical Variables to manage – what are the tangible movers in Cash Flow? To increase visibility, try integrating Sales through Invoicing through Collections in the forecasting    This will help provide better insight to Cash Inflows with regards to amount and timing.  Identify the large upcoming expenditures in your financial forecast (compensation, pre-paids, etc.) and manage the commitment timing to align with available cash flow.

 

  • Determine the Manageable Detail Level – this will be different by company and different by account. Go detailed on the critical variables; summary level on the routine items.

 

  • Implement a Cash Forecasting solution – much like the financial forecast with inputs from operations, the Cash Flow plan needs to provide visibility to key operations parts of the business.

 

  • Start Forecasting Direct Cash Flow and Measuring Performance – start. You will get smarter and better over time.  You may also identify some immediate areas that can drive sustained improvement.

 

Visibility and insight into Sales through Collections, large expenditure commitments, new asset commitments are all possible. Managing Direct Cash may end up improving your overall business performance.

Direct Cash Flow forecasting was the top add-on application requested by our clients last year.

 

By: Mark Davidson, Managing Partner

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