Monday, October 05, 2009
Session: Cash Flow Forecasting: Overcoming Challenges

Live blogging the Association of Finance Professionals in San Francisco, CA

Tim Hesler, Head of Treasury and Risk Advisory Practice at KPMG, moderated the panel and started with a funny Top 10 things to not tell your CFO. We laughed but knew that these statements are uttered every day, somewhere. My favorites were:

  • You wanted the cash forecast to go out past one week?
  • Our liquidity is fine. The bank statement shows a healthy balance.
  • Sources and uses of cash? What’s that?
  • What does the credit crisis have to do with our cash flow forecast?


Mr. Hesler went on to note that:
In the current environment, companies are returning to the basics (which they should use in good times and bad):

  • Strong cash forecasting and working capital management;
  • Use of tools such as dashboards.
     

KPMG’s 2008 Cash and Working Capital Survey provided sobering results:

  • 14% Respondents who say their cash forecast is accurate.
  • 68% Respondents who say their working capital will not improve over the next 3 years.
  • 85% Respondents who put cash as one of their top 3 priorities.
     

Other key points were:

  • Understand what measurements drive future cash flows and build them into the forecasting process because historical trends mean nothing.
  • Healthy companies need to liberate cash by reducing working capital. These internally-generated funds are less expensive than debt or equity for funding growth.
  • The only way to get accurate forecasts from divisions / departments is to tie it to compensation.
     

He closed by exhorting CFOs and treasurers to step up and provide leadership in their companies. They can do this by developing predictive rather than reactive tools that enable them to improve cash flow forecasting and act as key cash and working capital advisors to management.

This session buttresses our position that to stay ahead of the curve, 21st century management must, at a minimum, track Early Warning Signs, reduce working capital, and maintain 13-week rolling cash forecasts.

That is Practical Turnaround Thinking.