cash forecasting: make your forecast more accurate

Cash Forecasting: Make your Forecast More Accurate10/19/2015 | Greg Person

Topics for Discussion Why do we forecast

Questions to optimize cash forecast process

Path to success

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Why do we forecast? Ensure optimal liquidity to fund global business unit operations at the

appropriate level of risk and cost

Exposing & mobilizing idle pockets of cash

Improve P&L by reducing debt or increase investment balances

Execute corporate capital allocation strategy; share buyback, M&A, dividends

Visibility into FX exposures

Guidance to external investors; cash on my balance sheet vs. shareholder activism


Key questions to optimize forecasting

© 2015 Kyriba Corp. All rights reserved. PROPRIETARY & CONFIDENTIAL.

Be efficient with your valuable resources

Cash forecasting involves significant input, time and effort from across the organization

Clearly determine the decisions the cash flow forecast information will facilitate and benefits this will bring to the company

1. What am I solving for?


Repeated mistakes lead to poor information and flawed business decisions

One certainty with any forecast is it will not be 100% accurate

Cash flow forecasting is an iterative process variance analysis and understanding the root causes responsible for forecast error is critical

2. Am I making the same forecasting mistakes?


Lack of insight to corporate strategy will increase probability of material variances

Corporate Treasury should not operate in corporate silo

New product lines, M&A strategies and expand internationally, it will greatly impact the future cash flow needs and performance of the organization

3. Do I understand my business?


Stop leaving money on the table and reduce interest expense

Increased interest expenses, opportunity risk, potential P&L impact

Optimize intercompany global cash liquidity

Internal cash is cheaper than external financing

4. Why fund your business with external funds?


Two teams using two strategies to find the same number

Indirect method: FP&A

Direct method: Treasury

Aligning methods allows treasury opportunity to contribute at board level

Alignment also directs mgmt focus on treasury initiatives – e.g. FX hedging

5. Direct or indirect?


Sleep peacefully at quarter-end

Real-time cash visibility and cash flow allocation automation creates certainty

“Will we hit our free cash flow target” is no longer a question; it is known

FCF targets are increasingly tied to executive compensation and public guidance provided to the investor community

6. Do have real-time insight?

Improving the Cash Forecast


Path to Success

a) Collaboration – involving the right people

b) Consolidation – incorporating the right data streams

c) Measurement – feedback loop to measure and report on forecast accuracy…bank integration critical to success

Cash and Liquidity Forecast Dashboard


Clear, accurate view of cash position, forecast and accuracy Global connectivity for real time transparency

Regional Input & Cash Flow Roll-up


Simplistic user experience for global pariticpiation Flexible analysis views to answer ‘the next question’


Liquidity Worksheet Chart and Table View

Review impact to borrowings, investments, and credit facilities


Comparison of snapshots critical to measuring forecast accuracy (e.g. July 1 – Aug 31 as of Jul 1 vs. July 1 – Aug 31 bank actuals)

Forecast Accuracy – analyzing forecast variances


Require summary views with drill down to cash flow details Important to have multiple comparisons

▪ e.g. Original budget plan vs. current forecast vs. hypothetical scenarios



Just like Excel – adding comments is a good reminder to yourself or notes to others analyzing forecasts

Ideally, comments available at both summary level and when drilling down to level of detail


Aligning Direct to Indirect


Align change in operating cash flow to Indirect FP&A method Provide intra-quarter guidance to CFO, CEO and Board

Questions?

cash forecasting: make your forecast more accurate

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