Facing cash flow disruptions in a volatile market, how can you adjust your budgeting process to stay ahead?

As a CFO, I've seen firsthand how crucial cash flow planning is in navigating disruptions. Had hard times during Covid, GFC, ILFS Identifying vulnerabilities and developing contingency plans are essential steps. But, I'd add: ?? ?Regularly reviewing and updating cash flow forecasts ?? ?Maintaining a cash reserve (ideally 3-6 months' expenses) ?? ?Diversifying funding sources (e.g., lines of credit, invoice financing) ?? ?Building strong relationships with suppliers and creditors ?? ?Stress-testing financial models for potential scenarios Key Learning’s: ?? ?Cash flow forecasting is not a one-time task ?? ?Contingency planning requires ongoing review and update ?? ?Diversification and relationships matter

In a volatile market, needs to be proactive rather than reactive, diversifying approach to find new lines of revenue , control your costs, suppliers negotiations as well as diversity in choosing the suppliers with better terms and conditions with longer payable days. These things can be effective for the organization in volatile markets always.

Understanding the business's key drivers is essential to assess potential risks. Bifurcation of fixed and variable costs must be done in order to manage cash flows streams, another important factor is the determination of Gross Profit Margin and the its capability to bear the operating/non operating cost. Once it is done then you can make the multiple scenario that fit with you business model.

When cash flow is disrupted in a volatile market, it's important to update the budget regularly, like every month, to keep up with changes. Monitoring cash flow closely ensures there's enough money moving in and out. Planning for different scenarios, like the best and worst cases, helps stay prepared. Cutting unnecessary expenses and setting aside emergency funds provides a safety net. This approach helps manage finances better, even in unpredictable markets.

Rather than use an arbitrary time period for forecasting financial performance, adopt an event based approach that in effect becomes a continuous or flexible forecast. The focus should be on the handful of variable factors that are key to hitting financial performance goals. A supplement to the forecast should include contingency plans with probabilities assigned to major risks and opportunities.

Implementing rolling forecasts enhances your budgeting process by allowing regular updates—monthly or quarterly—based on the latest market conditions. This flexibility helps you anticipate and react to changes more effectively. Start by identifying key performance indicators (KPIs) crucial for your business, and update these KPIs with actual performance data regularly. Engage different departments to ensure accurate projections. Continuous revisions of your financial outlook enable more informed decisions, efficient resource allocation, and better cash flow management.

Budget Adjustments are used to modify an approved budget to reallocate funds among the budget categories. The original award amount may not be increased by this procedure. A budget modification can only be initiated, when an award has a final clearance or an approved budget.

Mantener un solo presupuesto anual, no siempre es la mejora manera, sin embargo un presupuesto trimestral, es de mucho mas ayuda, ya que se pueden in calculando las variables del mercado y con ello se puede presupuestar de una manera mucho más cercana a la realidad de la compa?ía. Por mi experiencia proyectar metas, mensuales y llevar el día a día su alcance es vital, ya que con ello se puede observar el alcance de los ingresos del flujo del efectivo. Lo cual permite mostrarse preparados para eventos que puedan, poner en riesgo la rentabilidad de la compa?ía.

Prioritize liquidity by monitoring cash flow closely, optimizing receivables and payables, and conserving cash to ensure business stability.

Adopt a weekly or if required daily reporting of cash flows and compare actual with forecast to understand and resolve any variances

Normally, I do a daily check of our cash position to ensure that the cash flow forecast prepared during the beginning of each quarter are aligned with the supposed to be inflow/outflow. At the beginning of each month, I review the cash position of each bank with the consideration of all the payments as per our aging, to be approved invoices as well as the EUR payments to happen within the next 3 months to minimise risks on forex. Looking into the current aging position, I will know what is the estimated inflow and outflow; adding some buffer for the recurring expenses that have not been updated during the current month.

To implement effective cash flow forecasting, define objectives like identifying cash shortages. Gather historical income and expense data, and choose a suitable forecasting tool. Create a model for projected cash flows and involve team members for accuracy. Update forecasts regularly and monitor variances to analyze discrepancies. Use scenario planning to prepare for various outcomes and communicate findings with stakeholders to guide financial decisions.

Focus on cash generation: Emphasize activities that generate immediate cash inflows. Tighten credit terms: Reduce the time it takes to collect payments from customers. Optimize inventory levels: Avoid excessive inventory buildup to free up cash

The most important thing is to continue to monitor spending and making sure to reevaluate your budget when things in your life change, like a change in career/income, a move to a new location, getting married, starting a family, etc. As life changes, so will the things you want and need to buy.

Do a scenario analysis and create a proper back up plan for various scenarios. Talk to lenders to let them know that funds may be required at short notice to meet cash flow commitments

By developing best-case, worst-case, and most likely scenarios, I’ve gained a clearer understanding of how different market conditions could impact cash flow. This approach allowed me to create tailored strategies for each outcome, ensuring the business was prepared for anything from growth opportunities to downturns. Regularly revisiting and revising these scenarios as market conditions evolved helped us stay flexible and responsive. This proactive planning enabled us to make informed decisions, safeguarding the budget against unexpected market shifts and ensuring long-term financial stability.

Sensitivity Analysis: Evaluate how sensitive your cash flow is to changes in key variables like sales volume, costs, or interest rates. This helps you understand which factors have the most significant impact on your finances. Contingency Planning: Develop specific strategies for responding to adverse scenarios, such as diversifying revenue streams or negotiating flexible terms with suppliers. This helps ensure that you have actionable plans in place.Regular Review: As market conditions change, revisit and revise your scenarios to reflect new information. This ensures that your strategies remain relevant and effective.

I’ve conducted scenario analysis, I begin by gathering comprehensive data on past performance, current financial conditions, and potential market influences. The key is to start with a baseline projection based on the most likely scenario, which includes stable revenues and expenses. From there, I develop a best-case scenario, factoring in ideal outcomes such as increased sales, improved market conditions, or cost reductions. Conversely, the worst-case scenario involves lower-than-expected revenues, potential cost hikes, or economic downturns.

Uma das formas mais eficazes de rever processos é implementar uma análise detalhada do fluxo de trabalho. Isso envolve mapear cada etapa do processo para identificar gargalos, redundancias ou atividades que n?o agregam valor. A automa??o de processos repetitivos também pode ser uma ferramenta valiosa, reduzindo o tempo gasto em tarefas manuais e consequentemente o erro humano. Realizar auditorias regulares e ouvir opini?es da equipe operacional pode fornecer ideias poderosas para ajustes e melhorias. Ao revisar processos com uma abordagem criteriosa e orientada por dados, é possível alcan?ar uma otimiza??o de custos mais significativa, liberando recursos que podem ser reinvestidos em áreas estratégicas para o crescimento do negócio.

One of the first steps I took was conducting a line-by-line review of the budget. Often, costs are buried under generalized categories, so I made sure to break down these expenses into more granular elements. For example, when it came to procurement, I examined how much we were spending on individual suppliers and services, which revealed opportunities for renegotiating contracts. In some cases, suppliers were open to adjusting payment terms or offering discounts in exchange for longer-term agreements or bulk orders.

Cost optimization is distinctly different than cost-cutting. Develop a mindset of maintaining or adding value at a lower cost while focused on providing an exceptional customer experience. Reallocating funds from the advertising budget to a lower cost employee training exercise could improve profitability and enhance brand loyalty. Employee turnover costs could be slashed by implementing incentive programs that promote employee engagement. In retail environments, dropping slow-moving products could drastically reduce inventory holding costs. Cost-cutting often negatively affects the customer experience while a cost optimization mindset often results not just in lower costs, but also in higher revenues.

Cost optimization is crucial in a volatile market. Start by analyzing and prioritizing expenses, focusing on essentials. Negotiate better rates or extended payment terms with vendors. Invest in automation tools to reduce manual labor costs and increase efficiency. Reduce overhead costs by cutting down on office space, utilities, and administrative expenses, possibly through remote work. Outsource non-core activities for cost-effectiveness. Implement energy-saving measures to reduce utility costs. Review and adjust pricing strategies, monitor and control inventory levels, and invest in employee training. Regular financial reviews help identify cost-cutting opportunities and improve efficiency.

Collaboration between finance and operations is always key to the success of any budget or forecast. When cash is tight, it is important that everyone understands how to properly manage it without impacting operations. That requires finance to clearly communicate the forecast as well as to involve operations in understanding any root causes of variances when doing the ongoing actual vs budget analyses.

Key notice to be taken into consideration: 1. Participation of other stockholders, keeping an eye on there future look on the long and short tern, and there expectations and assumptions on their area, will result in a realistic view. 2. What if / scenario analysis is important, in case of changing any of our variables, like USD rate or revenue stream for a reason or another. 3. Contingency cash funds consideration to be considered to cover any gap may happen, like minimum balance of cash end of each period. 4. Consider historical trends and seasonality of your business as well.

It is paramount to communicate regularly any challenges which the organisation is facing and this has to be done timeously. Regular meetings with all employees are important and should be done maybe fortnightly and management has to lay down strategies on how to overcome current challenges. Challenges have to be shared and understood by the whole organization nit with just a handful staff. This will enable employees to know exactly what is required of them and how they can contribute towards the successful navigation of the current challenges. Agreed strategies have to be holistically and transparently be implemented with constant communication. This will also reduce absence without official leave, sicknesses, go slows and even strikes.

Stakeholder Trust: Transparent communication builds trust and credibility. When stakeholders—whether employees, investors, or partners—are informed about your financial status and the reasons behind budgeting adjustments, they are more likely to support and engage with your organization. Trust can also lead to more flexible terms or additional support during challenging times. Employee Engagement: Keeping employees informed about the company’s financial health and any necessary changes in budgeting or strategy helps align their efforts with organizational goals. It also helps manage morale and reduces anxiety about potential job security or operational changes.

This will create panic , a true leader must have confidence to overcome the situation with visionary leadership. Take innovative actions immediately and recover the cash flow partnering with CFO. It’s a leadership issue that drives change with confidence.