Cash Forecasting and Budgeting - Alfred Artis
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Cash Forecasting and Budgeting - Alfred Artis






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Cash Forecasting and Budgeting - Alfred Artis Presentation Transcript

  • 1. C-FAB!
    Cash Forecasting and Budgeting
    Presented to
    NACM Western Region Credit Conference
    October 6, 2011
  • 2. 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
  • 3. 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
  • 4. The Textbook Planning Cycle
  • 5. The Reality Planning Cycle
  • 6. 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
  • 7. Elements of Successful Planning
  • 8. Database Management
    The cornerstone of successful planning
    Lowest cost piece of information out there—YOU ALREADY HAVE IT
    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
  • 9. Methods and Methodologies
    Days to Remittance
    Days to Receipt
    Billing Type
    Customer Type
    Customer Location
    Sales Program
    Risk Profile
  • 10. 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
  • 11. Case Study 1—Manufacturer
    Sells to distributors and directly to customers
    1,600 customers
    New models every year
    No seasonality
    Countercyclical Product
    What more information do you need?
    How would you plan for the upcoming year?
  • 12. Case Study 1—Planning
    Receipts Database :
    • Planning Reports :
    • 13. DTP by Product Type
    • 14. DTP by Prod Yr
    • 15. DTP by Sales Prog
    • 16. DTP by Risk (assumes risk correlates to economic cycle)
    • 17. DTP by customer type/Loc./Prod. Yr./Sales Prog
    Define correlations
    Calibrate to the sales forecast
  • 18. 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
    What more information do you need?
    How would you plan for the upcoming year?
  • 19. Case Study 2—Planning
    Database :
    • Planning Reports :
    • 20. DTP by Item Billed (upfront versus service)
    • 21. DTP by Cust. Since
    • 22. % Pd by Item Billed
    • 23. % Pd by Cust. Since
    • 24. DTP by Risk (assumes risk based on payment history)
    Define Correlations
    Calibrate to Sales based on Customer Profile
  • 25. 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!
  • 26. 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
  • 27. 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
  • 28. 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?