effective cash forecasting

Priscila Nagalli, CFA, CTP, Director of Treasury and Capital Markets

​How to approach forecasting effectively and most important, making it realistic, achievable and transferable leveraging technology. Below are 8 key tips to establish effective cash forecasting:
 
1.   Information Availability

Ensure quality data is available to position the project for success. The accounting budget is a good base to develop cash forecasting as long as the timing and discounts are taken into account. There are many areas of the company which provide input into the cash forecasting, these areas include but are not limited to:

•      Human Resources & Payroll
•      Taxes
•      Sales
•      Legal
•      Debt, Foreign Exchange, & Investments
•      Subsidiaries
•      Marketing
•      Procurement & Inventory

 
2.   Company Culture

It can be hard to maintain an accurate forecast as something is always happening internally or in the market. It is essential to foster an environment stressing the importance of cash flow management while continuing to communicate and share information throughout the entire process.

3.   Internal Systems

It is critical to know the system infrastructure. A cash forecasting technology can be utilized to create, simplify, streamline, and automate the forecasting process. Cash forecasting technology automatically populates known cash flows and constantly evaluates forecast effectiveness. This allows modifications to the forecast to be made in real-time based upon a seamless variance analysis.  

4.   Communication & Training

Initially, communication and training around the forecasting objectives and process should be provided to all areas. Then open communication should continue between the business partners. It is the responsibility of subsidiaries to deliver accurate forecasting information to treasury and for treasury to provide forecasts based upon the feedback to the business units. 

5.   Accuracy

It is essential that reported information be reliable and accurate. Since cash forecasting may be updated daily, an evaluation of the forecasts versus the actuals should be conducted regularly. This analysis can identify trends, which can be discussed to ensure the data remains precise and everyone is aware and engaged on the forecasts.

6.   Harmonize Forecasts

The creation of transparency should span across the organization. This allows various business areas to ensure that all related forecasts concur to generate the central view. 

7.   Objectives

Establish a forecasting process with well-defined objectives and ensure these objectives are clear and understood by all areas.

8.   Approach

It is important to develop an approach to forecast and gain consensus on this approach with all business partners. Five simple questions provided by Aetna can be asked when evaluating your forecast process:

1.    What’s the purpose of creating a cash flow forecast?

2.    Who is audience of the data?

3.    Who owns / updates the forecast? Treasury

4.    Who contributes to the forecast? Business partners

5.    How do you evaluate the effectiveness of your forecast?

For more information regarding our services, please visit our website
(www.actualizeconsulting.com/treasury.html) or reach out to me directly at 
pnagalli@actualizeconsulting.com

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