Cash Forecasting Best Practices


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A short conceptual review of the best practices for developing robust cash forecasts.

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Cash Forecasting Best Practices

  1. 1. Cash Forecasting Best Practices 1
  2. 2. Overview • Cash forecasting, especially in time-sensitive assessment type engagements, is a core skill for turnaround/restructuring professionals. – In the interest of ensuring the high-quality work product that our firm is known for, ACM Partners will continue to disseminate best practices for this core skill. • The process of cash forecasting in an engagement can be broken into five discrete steps, which we will explore in detail. Those steps are: 1. Obtaining Information 2. Developing a Preliminary Forecast 3. Revising Preliminary Forecast 4. Presentation of Forecast 5. Ongoing Reporting 2
  3. 3. Obtaining Information • A history of receipts and disbursements is usually attainable from the accounting / finance department of a client. – In most cases this requires little more than a data dump from a client’s accounting system(s) • Firms that have experienced financial distress in the past may have existing models for cash reporting. These are always worth the time / effort to review. – Generally speaking, management teams lack the expertise to develop sufficiently granular cash flow forecasts. However, operating assumptions and the timing of key disbursements can often be gleaned from a review of these files. 3
  4. 4. Developing a Preliminary Forecast • Management as well as staff in the collections and purchasing departments are likely the best source of information for developing a near-term (perhaps up to four weeks out) cash forecast. • Translating forecasted financials into weekly values (Sales and COGs translated into weeks via working days) is a quick and effective method of extending a cash forecast beyond the near-term. • Building in the functionality to adjust key variables on a weekly basis can significantly increase the value of a cash flow forecast model as a tactical tool. 4
  5. 5. Revising Preliminary Forecast • It is crucially important to review a preliminary cash forecast with management and especially the key finance contact person in order to provide a “sanity test”. • While this step is often informal and relatively quick, it can be invaluable in helping a consultant refine a forecast as well as in keeping the client involved in the process in a manner that is both constructive and minimally time consuming. 5
  6. 6. Presentation of Forecast • Initial reporting should provide an overview of liquidity under multiple scenarios. The ability to forecast liquidity under multiple scenarios is facilitated by the inclusion of the functionality to adjust key variables in the model. 6
  7. 7. Ongoing Reporting • Every cash flow forecast model should be prepared with future / ongoing reporting in mind. The reporting of weekly variances is especially important. 7
  8. 8. Conclusion • In order to develop a cash flow forecast in an assessment or other time- sensitive engagement it is important that industry best practices be employed. • The steps outlined in this tutorial have proven to be effective in allowing turnaround and restructuring professionals to rapidly develop high-quality cash flow forecasting models, and as such should be strongly considered in any engagement in which such a forecast is needed. • By employing the steps outlined in this tutorial as well as the weekly cash forecast template, consultants can quickly produce high quality cash forecasts in a time-tested format. 8
  9. 9. David Johnson • David Johnson is a founding partner of ACM Partners. His advisory experience spans North America and ranges from pre- revenue startups to Fortune 500 companies. • An active member of the Chicago business community, David currently serves on the board of directors (audit committee) of Gateway Foundation, a $70 million nonprofit organization focused on providing substance abuse treatment. Additionally, he is an active member in several professional associations. • David’s writing has appeared in several industry publications, and he has lectured at the University of Chicago, Northwestern University, the University of Wisconsin-Madison, the University of Illinois-Chicago and Loyola University Chicago. • David earned his MBA from the University of Chicago. His undergraduate studies were completed at Fairleigh Dickinson University. 9
  10. 10. About ACM Partners • ACM Partners is a boutique financial advisory firm providing due diligence, performance improvement, restructuring and turnaround services. • David Johnson can be contacted at: – Email: – Ph: 312-505-7238 • For more information visit: 10