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- PIMCO’s Bill Gross: On the "Course" to a New Normal, September 2009 Investment Outlook
- Session: Automating Payables to Optimize Working Capital
- Session: Re-inventing your AP process.
- Session: Kyriba demonstrates their ASP-based cash management operation.
- Session: Cash Flow Forecasting: Overcoming Challenges
The 13-week cash forecast (TWCF) is used by managers who are staving off bankruptcy. This makes sense because they need to know how long they’ve got to live, based on how much cash they need compared to how much cash they have.
But why use it only when times are tough? Why wait until the price is high and options are few, such as when you’re forced into a creditor workout, or when you’re evaluating bankruptcy? Why not do it all the time? Firms who continually maintain a 13-week cash forecast are maximizing cash. They are improving their firm’s performance by using the tools of turnaround management every day. This is the Practical Turnaround Management model.
The rolling 13-week cash forecast is also used extensively in the market for corporate control. Companies who don’t maximize cash destroy their firm’s value by not putting cash to its most productive uses. Private equity firms and activist investors seek out these companies and evaluate the untapped value in the target firm’s assets by constructing new business models, and testing the models for viability with tools such as the TWCF.
Once the target firm is acquired, via friendly or hostile takeover, new managers may be installed. The TWCF tool is again used to manage and maximize cash and use it to earn the highest risk-adjusted returns. Or the cash may returned to shareholders as dividends. Or management may lever up by issuing a lot of debt and use the cash to buy back stock. These actions are all likely to increase the value of the shareholders’ stock, at least short term. When management holds large equity stakes, their interests are perfectly aligned with those of shareholders.
Here's the practical turnaround thinking: you don’t have to be a private equity analyst, or a manager for a firm in decline, to use the 13-week cash forecast. Lenders and other creditors expect 21st century management teams not only to be aware of the firm’s cash requirements over the ensuing quarter, but also to be able to credibly explain variances in either direction. Management teams who fail to use this important tool are already in a state of decline because they are not vigilant and pro-active.
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