You're navigating through an unpredictable economic landscape. How can you accurately predict cash flow?

It's important to understand historical cash flow, particularly focusing on key items such as debtor collection, payroll, rent, utilities, and tax payments. Looking back and comparing prior forecasts against actuals is crucial, as it holds us accountable and enables better refinement of the forecasting methodology, leading to more accurate cash flow predictions in the future.

For a smaller business, this should be simpler as it requires a lot less data points to deal with. For larger organisations, it’s key to stay aligned and close to stakeholders who are involved in the procurement and debtor collection process. It’s critical that effective controls are in place and that these stakeholders are aware of the consequences of missing material items or having any surprises to cash flow. Ultimately, communication and education with these stakeholders is crucial.

We also need to consider that changes in the economic landscape could also adversely affect our customers, potentially preventing them from clearing their dues on time. To mitigate this risk, we actively engaged with our customers to understand their situations better. For example, we reassessed the capability of our customers to clear their dues. This proactive approach allowed us to re-arrange payment terms when necessary and incorporate these changes into our cash flow predictions. Active monitoring and flexible payment arrangements helped us maintain strong relationships with our customers while ensuring our own financial stability.

Scenario analysis: Both with an unpredictable economy and a more stable environment, businesses need to assess multiple scenarios continually. And most importantly, have a plan for each scenario.

The scenarios can be more specifically tailored to your business, and be based on the key risks that you deal with as a financial controller or business manager. For example, a possible scenario that a key customer that makes up 30% of the debtor position misses payment by a week, or if a shipment suffers delay by a month which creates downstream impact to invoicing and debtor collection. Having these key risks be reflected in the cash flow in the scenario helps to mitigate risks, especially in the short term.

This might sound unsophisticated, but a spreadsheet is still the best tool! The inherent flexibility of a spreadsheet allows for adjustments and customisations to cater to the unpredictable nature of cash flow forecasting. The downside is the lack of built-in checks and controls to ensure everything ties together. To mitigate this, use tools like SmartView (for Hyperion, as an example) that automatically pull data from ERP/Accounting systems to populate actuals, limiting the level of manual inputs. Also, go back to basics and use fundamental accounting skills to ensure that opening balances agree and that the variables all make sense together. Group related items and highlight key ones that could be material risks.

Sin duda alguna apoyarse en un profesional financiero es un punto importante a tener en cuenta. Con su experiencia podrá ayudar a hacer proyecciones de flujos de caja futuros teniendo en cuenta diferencies escenarios, de más positivos a más negativos, además también de ayudarte a dise?ar un plan de acción para cada uno de los escenarios posible.