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Cash Forecasting and Budgeting - Alfred ArtisPresentation Transcript
C-FAB! Cash Forecasting and Budgeting Presented to NACM Western Region Credit Conference October 6, 2011
Agenda Budgeting versus Forecasting versus Planning Defining the Planning Cycle The Role of Data Management Methods and Methodologies Two Case Studies Managing Variances Forecast Killers Planning Checklist
Budgeting, Forecasting, and Planning Budgeting What they assume/want to happen Forecasting What you expect to happen Planning How you respond to each Key Questions: Which comes first (ordinal)? Which is the most critical (make-or-break)? Which do you perform in your organization? Hint: These are trick questions
The Textbook Planning Cycle WITHIN THE CONTEXT OF A MISSION & OBJECTIVE:
The Reality Planning Cycle
Impact on Credit/Collections Priority has been placed on reacting over planning Very little time to react or plan (especially plan) Good reactions may not yield good long-term results It’s unfortunate, but reality planning may be permanent Thesis of this presentation: Cash Planning is irrelevant Superior Cash Planning = discipline and flexibility
Elements of Successful Planning
Database Management The cornerstone of successful planning Lowest cost piece of information out there—YOU ALREADY HAVE IT Fact-based Can help you manage your own expectations First level of managing expectations Should include all details of the cash process: Dates of every step: invoice, receipt, application Invoice Info Payment Type
Methods and Methodologies DSO Days to Remittance Days to Receipt Billing Type Customer Type Customer Location Product Sales Program Risk Profile Customer-by-customer
Which Approach is Right For You? Start with applying all methods to historical data Determine correlations--This is your methodology Share your results and obtain alignment
Case Study 1—Manufacturer Sells to distributors and directly to customers Multinational 1,600 customers New models every year No seasonality Countercyclical Product Questions: What more information do you need? How would you plan for the upcoming year?
Case Study 1—Planning Receipts Database :
Planning Reports :
DTP by Product Type
DTP by Prod Yr
DTP by Sales Prog
DTP by Risk (assumes risk correlates to economic cycle)
DTP by customer type/Loc./Prod. Yr./Sales Prog
Define correlations Calibrate to the sales forecast
Case Study 2—Service Provider Sells directly to business customers 3,000 customers 2-year contracts—upfront and monthly charges Rapid Growth Highly Competitive Business Questions: What more information do you need? How would you plan for the upcoming year?
Case Study 2—Planning Database :
Planning Reports :
DTP by Item Billed (upfront versus service)
DTP by Cust. Since
% Pd by Item Billed
% Pd by Cust. Since
DTP by Risk (assumes risk based on payment history)
Define Correlations Calibrate to Sales based on Customer Profile
Managing Variances Key Point: You are planning and not predicting Requires separate database of accuracy/variances Variances should be calculated in as much detail as forecast Historical variance levels should be used to set a RANGE of expectations e.g., % of receipts/forecast Other Key Point: TELL SOMEBODY!
Forecast Killers Relying on a single methodology Absence of data granularity Not analyzing your own data No visibility into customer-affecting changes Not asking for information that you need Telling people what they want to hear/Accepting their assumptions
Concluding Points The objective is to manage expectations as well as manage to expectations Successful planning=consistency with expectations This requires a LOT of data accumulation and analysis This requires constant review, revision, and communication—over time, should yield a tight range Doing this brings you into the realm of a reliable, professional planner Maintain discipline through a checklist
Planning Checklist Do I have a usable database? Do I have reasonable data conclusions? Is Management aware of the data conclusions? Do my expectations agree with the data conclusions? Does Management agree with the data conclusions? Do I have a range of expectations? Does my range contain Management expectations? Do I have a reporting/assessment plan? Have I identified all possible variance influences? Do I have a plan to report/respond to variance?