Intro Video Transcript

Cash Flow Forecasting By Nicholas Soon Hi, welcome to this Cash Flow Forecasting Course. Before I start let me introduce myself. My name is Nicholas; I am an Internal Treasury Professional – with more than 15 years of treasury experience. I work for an internal company “The Fast Moving Consumer Goods Industry” that’s more than two hundred business entities all over the world. In the last 15 years I worked on many treasury projects; covering cash management, review of papers and receivable processes, treasury transformation initiatives, cash management and treasury system implementation, treasurer management projects and many more. I’ve been through the financial crisis of the last decade, have developed a strategist special registry plans to help my organization manage this more effectively. In this course I will take us through a course on cash flow forecasting: which is the basic foundation for all organizations in this rapidly changing world. The course will take about 60 minutes and I have 33 slides. By agenda we will cover the following four main areas: Agenda 1. The importance of cash flow forecasting to your organization and its benefits in order to ensure business success and survival. 2. I’ll help you to understand the drivers of the cash flow forecast and then teach you to prepare and build a multicurrency cash flow forecast so that the cash flow forecast is user-friendly and can be used for decision making purposes throughout the organization 3. I’ll go through with you on how to put in place cash flow forecasting accuracy metrics in order to measure and monitor the cash flow forecast accuracy regularly for continuing improvement of the cash flow forecast. 4. Last but not least, I want to show you some ideas on how to further enhance your cash flow forecast quality and accuracy. The Importance of the Cash Flow Forecast Why forecast cash flow? 1. In order to effectively manage parts of your respective organisation, the tool we usually overlook is the cash flow forecast. Cash is really King! It is the heartbeat and lifeblood of your organisation, as it determines the survival of the business to ensure your customers pay on time and you pay your employees and suppliers in accordance to the terms agreed. If not, the operations of the business will collapse. The reliability of the cash flow forecasting has become more important in recent years due to internal and external pressures. 2. Having said that, cash flow is also forward looking, unlike accounting, which is of course, history. Until recently, most senior executives regarded management cash flow and liquidity as statically functions as mundane activities left to administrative managers. No more! As the global financial crisis has taken off credit, cash management has become strategic. Companies with weak opting cash flows are finding it more difficult to secure outside funding just to secure it is harder than ever to generate. The resulting cash pinch can threaten the largest global organisations. 3. It’s obvious the accuracy of forecast is important, but achieving accuracy is a journey with continuous improvement initiatives being activated and implemented. Cash flow plans are living entities and must constantly be modified as new information becomes available and future cash inflows and outflows. Each budget should be analysed and a cash flow evaluation should be determined. 4. A multicurrency cash forecast is important in order to manage foreign currency exchange worldly to ensure stability of earnings. In this time and age, most organisations has some form of foreign exchange currencies, given the nature of global business where sourcing for the lower cost product or services might not come from your own country and customers can come from anywhere in this fully connected world. What is cash flow forecasting? Cash flow forecasting is a process of predicting cash flow, at least on a monthly basis for the purpose of managing liquidity needs and for investment control. An accurate cash flow forecast provides the organisation with the essential information needed for making sound investment decisions. A high quality cash flow forecast should answer the following questions: 1. How much cash is available at any one time 2. When will it become available? So that it can be used for operations and the running of the business. 3. How long will cash be available? These are very, very pertinent questions for organisations to answer. Benefits Not let’s run through the benefits of cash flow forecast. Building a good cash flow forecasting model takes time and effort. Are the benefits greater than the costs? To answer that question, it is important to understand the benefits of cash flow forecasting. These benefits include: • Improved investment earnings • Ensured liquidity availability • Identify any periods of negative cash position Improved investment earnings and ensured liquidity go hand-in-hand. If you do not know when the funds will be needed for this business, your tendency will be only to hold investments with exceptionally sharp maturities. This ensures that you will be able to meet your payment obligations, but to get that liquidity, investment that is normally given up in an upward sloping hill curve environment. You can predict when funds will actually be needed. You’ll be able to ensure liquidity at the same time, improve investment performance by taking advantage of longer maturities in an upward sloping hill curve environment. Another benefit of cash flow forecasting is that it can help identify any periods where you may actually have a negative cash position requiring some form of shut down financing. You will be able to then strategise to get the best possible option and reap for your funding. As I mentioned before, the multicurrency cash flow forecast is very important to identify foreign exchange exposure to manage risks and for protection of earnings.