My friends at CFO Consulting Partners most recent newsletter included timely and helpful tips on re-forecasting your cash, which is suddenly incredibly important, particularly in financial institutions that entered the pandemic with relatively lower amounts of liquidity.
Cash Forecasting
by Rob Milrod, Director, CFO Consulting Partners (rmilrod@cfoconsultingpartners.com)
Cash
forecasting, always important, becomes even more highly critical during times
of economic disruption. Here are some key points to consider for an effective
process:
1. Use
a segmented approach to avoid over forecasting cash inflows. Consider customer
segment, size, and seasonality - tax time could drive slower payment behavior
for all types of clients.
2.
Experiment with data that helps differentiate slower payers, e.g. credit
ratings, industry, etc., to inform the forecast and contribute to faster
collections.
3.
Test solutions that help manage the lag between payments and collections; For
example, tying accounts receivable team compensation to timely invoice
issuance, offering discounts to slower paying customers for prompt payments,
and perhaps requiring a partial upfront deposit from customers who regularly
pay late.
4.
Organize the forecasting approach and outputs in a consistent manner so that
the accuracy of prior forecasts can be assessed. and so that it's clear where
to adjust management's estimates.
5. For
cash outflows, communication across the management team can make or break this
process. Especially in a start-up where monthly spend patterns based on history
are not available, there is no steady state to rely on. Management team members
should regularly discuss and consolidate their outlooks for daily cash receipts
and disbursements.
6.
Start with prior bank statement activity to come up with typical monthly
recurring items.
7. Map
key bank statement items to actual expense so that the expense patterns in
business plans and budgets can provide context for the cash forecast.
8.
Identify cash items already expensed and therefore not in management's outlook,
as well as future capital outlays.
9. A detailed aging, accounts
payable for outflows and accounts receivable for inflows, is a ready source of
information for future cash flows and is extremely helpful in cash
forecasting.
10. Take into account any cash
flow benefits from the new Coronavirus Aid, Relief, and. Economic Security Act.
So, so you have any thoughts on the ppp? As it seems like it has been a mess this past week, with continuing changes in guidance. In addition, as an accoutant, I'm not wild about, but not surprised that banks don't want to recognize accountants as agents and pay out the agent fee. Pnc went so far as to put that language in the application.
ReplyDeleteDave,
ReplyDeleteThe PPP has a fixed pool of money, is a first come first served program, and was just launched Friday. So the chaos that ensued should have been anticipated. I am concerned that large banks, with their resources, implement a tech fix that gets their customers approved ahead of community banks. Otherwise, we will have to see how it plays out. Bankers all over the country were working to get their customers approved this weekend and will be at it again today.
Thank you for the comment.
~ Jeff