Cash Flow Forecasting and Strategy Development

VIRGINIA GOVERNMENT FINANCE OFFICERS ASSOCIATION

2014 SPRING CONFERENCE

Presented By: Richard G. Long, Jr.

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Presentation Promise

1. Practical Suggestions To Improve Interest Income

2. Interest Is Still Important/Beneficial – Even At Today’s Yields

3. Goal: Exceed Miniscule LGIP Returns

4. Add Appropriate Additional Income

5. Modest Time/Effort = Solid Value (e.g. Second Tuesday)

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Improving Investment Performance

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Why Bother? – Example #1

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Why Bother? – Example #2

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Example #2 (page 2)

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Why Bother? – Example #3

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Example #3 (page 2)

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#1 Quickest “Added Value”

• Depository Bank Account Analysis Statement

• Way Too Much Over-compensation!

• Excess Balances Accrue FDIC Assessment

– Recoupment Monthly

– Insurance and Regulation Fee

– Deposit Insurance Fee

– FDIC Insurance

• Talk to Your Banker

• Determine Adequate Level

• Arrange Hard-Interest For Extra Balances

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Defining Investment Objectives

What are the

priorities?

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What Are Your Objectives? A. Safety of Principal

• High Credit Quality

• Sufficient Liquidity

B. Feel Comfortable

C. Achieve Appropriate Return

D. Increase Projecting Ability

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Investing Public Funds:

•Keep It Safe

•Keep It Liquid

•Public Trust

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Develop an Investment Strategy

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Strategy Development

•Adopt Disciplined Approach

•Evaluate Cash Flows

•Safely Allocate Investments Beyond Overnight

•Allow Ladder Length to Flex

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Wall Street vs. Main Street

Wall Street “Liquidity” • You Can Sell At Any Time!

• Lots of Bids

• Next Day Settlement

Main Street “Liquidity” • Cash In Hand @ Full Value (In Time To Pay The Bill)

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Primarily Emphasize Safety and Liquidity

“Cash Flow Estimates Develop Appropriate

Strategy”

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How About Those Cash Flows?

•Level One – Casual Understanding

•Level Two – Reasonable Estimates

•Level Three – Mega Detail

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Everyone Has Data! – Mountain Range

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Everyone Has Data! – Rolling Hills

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Level Two - Operating Funds

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Evaluate Your Consistent Expenditures:

• Payroll • Debt Service • “Regular” A/P

Level Three – Lots of Detail!

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Identify Net Outflow Months

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Implement Strategy

•Target Some Cash Flow Dates

•Build and Maintain Ladder

•Keep Discipline

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CIP/Bond Proceeds – Three Questions

How Much?

Start Date?

Finished By?

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Design Phase With Bell Curve

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Irregular Overall Program

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Benefits of Cash Flow Analysis

Identifies Cash Flows and Periods of Shortfalls

Targets Liquidity Where Needed

Improves Interest Income

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Opportunities In Today’s Market

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Current Investment Yields

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Understand Risk/Return

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Interest Rate History – US Treasuries

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“Public Funds” Investment Rules •Understand PFIL

•Follow Policy & Strategy

•Stay Within Cash Flows

•Diversify Investing Cycle

•Analyze All Risks

•Understand What You Buy

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Presentation Promise

1. Practical Suggestions To Improve Interest Income

2. Interest Is Still Important/Beneficial – Even At Today’s Yields

3. Goal: Exceed Miniscule LGIP Returns

4. Add Appropriate Additional Income

5. Modest Time/Effort = Solid Value (e.g. Second Tuesday)

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Questions?

Richard G. Long, Jr.

Valley View Consulting, L.L.C.

2428 Carters Mill Road

Huddleston, VA 24104

(540) 297-3419

rglong@yahoo.com

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