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Cash Forecasting: Setting the Table for Success

Scott Gunn's Profile

Accurate cash forecasting is all but impossible without a well defined sustainable process. A quality cash forecasting process sets the table for success and forecasting cash without one places a huge barrier to success in this inherently challenging endeavor.  The very first items of business are to define the goals and purpose of the cash forecast.  Is it a short term (daily or weekly) or longer term (monthly or yearly) forecast? Is this forecast to be used to manage daily working capital or forecast balance sheet cash? What is the desired level of accuracy? What is the feasible level of accuracy given the current resources at your disposal?

It is also important to identify all the people, processes, and technologies that affect the reporting and movement of cash within, coming in, and going out of your company. A key component of cash forecasting accuracy is to establish the highest level of visibility of cash possible. The more insight you can gain into what drives the movements of funds into and out of your organization the more accurate you can be in forecasting cash.

I would argue that it makes sense to map out all movements of funds and all parties involved (both internally and externally) that affect the reporting of funds movements, the key inputs into the cash forecast. You need to identify the factors that can affect cash forecasting accuracy and these include people and technology.

You also need to understand and manage the people you need to “get on board” to produces an accurate forecast. We have all heard the phrase “garbage in and garbage out” and this never rings more true than it does in the arena of cash forecasting. Providing those involved in the cash forecasting the incentives, tools, and training to be a productive part of the cash forecasting process produces forecasting accuracy.

Prior to worrying about what models and technology you will use to produce an accurate cash forecast you need to understand the inherent barriers to success, mitigate them, and set the table for success.

I would welcome comments including specific challenges faced in developing an effective, sustainable cash forecasting process.


Fiona McGinnis
Title: Assistant Treasurer
Company: In-between
(Assistant Treasurer, In-between) |

In addition to the key drivers for success in a successful, sustainable cash forecasting process I would say that the single most important factor is the commitment at the highest level of management to the process. Otherwise its all too easier for people in the process to cite the usual reasons for not being able to do cashforecasting; lack of resources, lack of a system etc etc. Also the benefits of a good cash forecasting have to be quantified and demonstrated otherwise people just think they are wasting their time. I often wonder why the budgeting process is ingrained in most companies but not accurate, sustainable cash flow forecasting

Ryn Melberg
Title: COO/CEO
Company: In-between
(COO/CEO, In-between) |

Fiona, I've wondered myself why cash forecasting is not taken as seriously as budgeting and planning. One contributing factor is that at least within financial services, it was a high cash industry where it was "always flowing" so why should executive management or even the board be concerned. If it isn't broke, then why plan for it? Another contributing factor that I've noticed is that corporate short-term lending rates have been (and continue to be) very low and the perception is that the cost of the interest paid is less than the staff costs associated with cash flow management.

I'm curious if anyone has experience one or both of these paradigms in their industries or organizations.

John Calfee Jr
Title: CEO/Owner
Company: Stop Sisyphus Now
(CEO/Owner, Stop Sisyphus Now) |

I have found that a 13 week model using historical information generates reasonably conservative results. Items such as payroll, debt payments and certain other infrequently paid items can be scheduled into the future, but actual cash receipts and payables payments can be somewhat predictive. I beleive a critical element to making this model work effectively is recording actual results by week compared to what had been forecast and investigate significant differences

Patrick Reid
Title: Interim CFO
Company: Fulcrum Financial Management llc
(Interim CFO, Fulcrum Financial Management llc) |

I project cash out twelve months by projecting the Income Statement and the Balance Sheet and then creating a Statement of Cash Flow from those two. This did not attract much interest until I went in with concerns that by year end (this was in May) we would exceed the line and violate all three covenants. We put together a plan and went to the bank (and survived the downturn with help from the bank). From then on my projections were taken more seriously. It is too bad that it sometimes takes a crisis to get some interest.

Scott Gunn
Title: CFO
Company: In-Transition
(CFO, In-Transition) |

I just wanted to see if anyone out there has found a Cloud or SaaS based cash forecasting solution that works well for a conslidated global cash forecast. Among other issues, I am tired of the "many versions" of the data truth that I am currently encountering in using in my current process and Excel.

Anthony West
Title: CEO
Company: Inscribe Ltd.
(CEO, Inscribe Ltd.) |

There is a UK site that enables detailed on called forecast profits, cash flows, balance sheets and so on. I'd be lost without it.

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