Cash Forecasting and Budgeting - Alfred Artis
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Cash Forecasting and Budgeting - Alfred Artis Cash Forecasting and Budgeting - Alfred Artis Presentation 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?