Control the flow (Part 1) The Value Of Preparing A Robust Short Term Cash Flow Forecast (STCF).

Value of preparing a short term cash flow forecast (STCF)

A practical step in the current environment 

A key step of the government’s response to the current pandemic can be summarised as secure and protect NHS capacity by asking the public to take action to control the flow.

The following recommendation is in the spirit of support to CEOs, CFOs and finance teams that due to the current environment may be in shock or unsure facing uncharted waters; whilst needing to move at pace with a range of other critical activities to secure and protect their organisation.

As a practical step to help control cash flow if not already in place I strongly recommend prioritising the preparation a robust 13-week short term cashflow forecast (STCF) which is then reported against and updated on a weekly basis.

Often in turnaround or highly distressed situations day 1 focus and priority is placed on creating a robust STCF with input from relevant business functions. Note this is based on the available knowledge at that point and underpinned by the business P&L forecasting processes and latest balance sheet positions.

The STCF needs to be updated and refined on a weekly basis with relevant input from the business functions, taking care to adjust for timing or permanent forecast differences. The STCF helps to highlight potential levers to help control the flow but also pinch points and funding requirements. Also, rapidly changing circumstances can be quickly overlaid for example changing demand, internal initiatives, the government measures to support business therefore giving management a more accurate view of the path ahead.

A word of caution, it is important to commit to doing the exercise properly and therefore there is a need to prioritise and drop non-essential tasks to create capacity.  There is a stark contrast between preparing a robust STCF with business input to accurately forecast and control cash versus an output from purely running a business on a cash basis (the equivalent of flying blind).

The value of a robust STCF is that it is relatively straight forward to prepare, provides critical timely information to guide management facing ambiguity and uncertainty; and acts as a focal point for the business efforts also helping to create a cash culture.

To all management teams I wish you, your employees and families safety and every success at this challenging time; and hope you find the above practical step of value to your organisation in the current environment.