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Optimizing Your Cash Forecast

In this webinar, Kyriba and Treasury Strategies reviewed the different types of forecasts, approaches to data gathering / modeling / compilation, and the use of technology to improve forecasting. Gained an understanding of the issues associated with each part of the forecasting process and alternate approaches to create, update and refine your forecasting process.

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Optimizing Your Cash Forecast

  1. 1. © 2015 TreasuryStrategies,Inc. Allrights reserved. Presented By Optimizing Your Cash Forecast: Improving the Crystal Ball December 9, 2015 Jeff Diorio Treasury Strategies Managing Director Elaine Filus Treasury Strategies Principal Bob Stark Kyriba Vice President, Strategy
  2. 2. Welcome! Jeff Diorio Treasury Strategies, Inc. Managing Director Jeff_Diorio@TreasuryStrategies.com 2 Elaine Filus Treasury Strategies, Inc. Principal Elaine_Filus@TreasuryStrategies.com Bob Stark Kyriba Vice President, Strategy bstark@kyriba.com @treasurybob
  3. 3. Agenda • Why is Cash Forecasting So Difficult? • Forecasting Fundamentals • Liquidity Forecasting: Overview • Liquidity Forecasting: The Details 3
  4. 4. Why is it so difficult? 65% 59% 47% 35% 34% 31% 30% What are your top 3 strategic challenges? Source: TSI/Reval Treasury Benchmarkingsurvey,2015. 4
  5. 5. Polling Question 1 Ø How would you rate your current forecasting process? • 5 = Excellent • 1 = Poor • 0 = What forecasting process? 5
  6. 6. Challenges • A majority of organizations have ineffective cash forecasting processes. • Many organizations face the same kinds of forecasting challenges: - Insufficient resources - Poor information access/exchange - GIGO (accurate data sources) - Organizational complexity - Ineffectiveforecast methodology, tools - Poor internal knowledge of cash flows - Inconsistency between short-term cash forecast and budget 6
  7. 7. Polling Question 2 Ø Which 2 of the following are your toughest challenges? (select 2) • Insufficient resources • Poor information access/exchange • GIGO (inaccurate data from sources) • Organizational complexity • Ineffectiveforecast methodology, tools • Poor internal knowledge of cash flows • Inconsistency between short-term cash forecast and budget • Other 7
  8. 8. Benefits • Avoid liquidity and capital issues • Maximize the value of cash assets - Minimize the cost of borrowing à Lower cost of capital - Maximize return on investments • Enhance control(anomalies quickly recognized) • Improve the effectivenessof risk managementactivities • Improve the comfort level of key stakeholders • Improve the financialperformance of the company • SupportTreasurer’s contribution to business planning 8
  9. 9. Forecasting Fundamentals
  10. 10. High-level blueprint of the company’sfinancial future Forecasting Objectives • Ensure access to adequate capital – cash and credit - Short-term à Liquidity planning [Treasury] - Long-term à Capital planning [FP&A] • Ensure effective working capital management:Is cash effectively deployed? • Effectively manage risk: where are we exposed (FX, interest rate)? • Design a capital structure that supports business plan • Anticipate impact on earnings, profits, EPS 10
  11. 11. Capital Budget vs. Liquidity Forecast Business Strategy Capital Structure 11
  12. 12. Capital Budget vs. Liquidity Forecast Business Strategy Capital Structure Liquidity Forecast Budget Budget Top-down (FP&A) vs. bottom-up (Treasury) approach to liquidity 12
  13. 13. Reconciling: Budget vs. Liquidity • Reconciling budgetcash with liquidity cash is difficult – there are differences Budget Pro Forma Financials GAAP Accounting Ledger Balances Long-Term (1–5 yrs) Periodic Updates Liquidity Manage Liquidity Actual Cash Available Balances Less than 1 year Frequent Updates 13
  14. 14. Reconciling: Budget vs. Liquidity • Reconciling budgetcash with liquidity cash is difficult – there are differences Budget Pro Forma Financials GAAP Accounting Ledger Balances Long-Term (1–5 yrs) Periodic Updates Liquidity Manage Liquidity Actual Cash Available Balances Less than 1 year Frequent Updates • Different goals • Different perspective • Different measure of cash • Different time horizon • Different schedule 14
  15. 15. Liquidity Forecasting: Overview
  16. 16. Purpose of Liquidity Forecast • Guide funding operations: Do we have adequate cash? - Mobilize cash - Drawdown/repay credit, purchase/redeem invested funds • Manage intercompany balances:Is cash effectively deployed? • Ensure cash optimization: Maximize return? Minimize funding expense? - Define investment maturity to maximize return - Decisions about borrowing – which funding source, for how long? • Inform risk management:Measure and effectively hedge foreign exchange and interest rate exposures • Plan non-discretionary payments:Can we meet the requirements of our creditors and support the strategic business plan? - P&I repayments - Taxes, Payroll - Acquisitions Support key treasury activities 16
  17. 17. Treasury Forecasts 17 They should be linked but all have different objectives and uses Near-Term Medium-Term Long-Term Objectives Daily cash positioning Invest/borrow decisions Liquidity planning, borrowing decisions Long-term capital management and earnings protection Horizon 1–4 weeks 13–18 weeks 12–18 months Detail Most granular, account level details Medium Summary level detail; focus on balance sheet, business categories Frequency Daily Weekly Monthly or Quarterly Update Intraday, as needed Weekly Monthly Treasury can have multiple forecasts – different time horizons
  18. 18. Liquidity Forecasting: The Details
  19. 19. Liquidity Forecasting Cycle 19 Centralized Collection Tool Forecasting Model Variance Analysis Output Reports to Users Forecast Refinement Process Data Sources Business Units Financial Units Internal Systems Bank Data 1. Data Gathering 2. Execution 3. Variance Analysis & Analytics 4. Reporting 5. Refinement
  20. 20. What you need... • Comprehensive mapping of all cash flows and strong understanding of cash flow volatility drivers • Strong communication with providers of information - Communicate the importance of accurate cash flow information - Train business units in cash forecasting best practices - Provide feedback on accuracy - Enforcement • Tools that supportdata gathering and consolidation • Dynamic trending and variance analysis tools linked to the TMS - Information from the TMS is used to generate forecasts, then forecasts are, in turn, fed back in to the TMS - Or, tools are resident in the application • Accurate assessmentof the level of aggressiveness/conservativeness - Evaluate the consequences of inaccuracy - Review actions taken based on forecast 20
  21. 21. Sources of Data: Liquidity Forecasts Bank Transactions and Balances (Bank Portals) Liquidity Forecast Business Unit Forecasts (Subsidiaries/Affiliates) Sales Forecast (Sales Department) A/R & A/P (ERP & A/R, A/P Systems) Investment & Debt Maturities (Treasury) Interest Flows (ERP & Treasury) Capital Expenditures (Business Planning) FX & Derivative Settlements (ERP & Treasury) Repetitive Payments (Various Sources: Tax, Payroll, Insurance, Accounting, Finance) 21
  22. 22. Approaches to Forecasting • Receipts and Disbursements - Specific known upcoming cash flows - Generated by TMS - Reported by sources - Recurring items - Apply trending, seasonality to historical data • Statistical Modeling - Time series, regression, other complex techniques - Determine business variables that correlate with cash - Identify sources of business variable data - Select statistical methodology/tools and develop forecast - Test model for significance 22
  23. 23. Defining Methodologies Type of Cash Flow Forecasting Methodology Receipts Accounts Receivable short-term; Sales estimates longer-term AP Disbursements Accounts Payable short-term; Expense estimates longer-term Payroll and Benefits Bi-weekly estimates based on history + info from HR Debt-Related Expense Based on principal, interest, and fee information in the TMS Taxes Planned payments and estimates from Tax department Capital Expenditures Schedule of CapEx-related payments from Finance 23 • One size does not fit all • Considerforecasting methodology at a granular level – individual cash flows
  24. 24. End Result 24 7/14/14 7/15/14 7/16/14 7/17/14 7/18/14 7/21/14 7/22/14 Mon Tue Wed Thu Fri Mon Tue 582.00 598.49 1037.44 1283.22 554.96 515.13 536.16 46.49 104.95 0.78 2.74 0.17 51.03 165.33 (30.00) (30.00) (30.00) (30.00) (30.00) (30.00) (30.00) (50.00) (10.00) (651.00) (11.00) (100.00) (125.00) (125.00) 500.00 500.00 598.49 1037.44 1283.22 554.96 515.13 536.16 671.49 (250.00) (625.00) (1000.00) (1000.00) (1000.00) (1000.00) (1000.00) Ending1Balance CP=Outstanding All#balances#are#in#MM Netting=Payments/Receipts Treasury=Wires IC=Payments/Receipts= Borrowing1Activity CP=Maturing CP=Issuance Expected=Payroll Domestic1Cash1Forecast Beginning1Balance1(MMF) Cash1Activity Expected=Receivables Expected=Payables
  25. 25. Variance Analysis: What was different? 1. Variance Analysis • Forecast to Actual • Forecast to Forecast • Multiple frequencies 2. Analyze ForecastEffectiveness • By line item • By time period 3. Report back to data sources 4. Update the forecast 5. Rinse and repeat 25
  26. 26. Reporting: Meet Stakeholder’s Needs • Highlight material variances and provide explanation • Reporting uses indicate required views of the data - Manage deployment of cash excesses à view by bank account - Plan for intercompany lending à view by entity - Manage FX hedging à view by currency - Manage quarter-end financials à view by specific time buckets 26
  27. 27. Other Analytics • What-if/scenario analysis - Changes in market conditions à impact on sales, supplies, inventory - Changes in interest rates à impact on cost of debt - Changes in FX rates à impact on exposures 27
  28. 28. To Summarize... • Strong liquidity forecasting is a key componentof financial success • Treasurer’s role... - Facilitate effective communication - Ensure sound forecasting processes - Provide supporting resources and tools • Liquidity and capital budgeting forecasts may have different objectives,but can benefit from common practices • Variance analysis should foster continuous improvement 28
  29. 29. Success Factors • Endorsementby senior management • Clearly define objectives and goals – relevantto all stakeholders • Develop communication channels between Treasury and data “owners” - Efficient, systematic data flows - Clear roles and responsibilities • Create efficient, consistentmethodologies • Keep it simple – balance precision with effectiveness • Regular variance analysis for continuous improvement • Collaborate with FP&A 29
  30. 30. Thank You! Jeff Diorio Treasury Strategies, Inc. Managing Director Jeff_Diorio@TreasuryStrategies.com 30 Elaine Filus Treasury Strategies, Inc. Principal Elaine_Filus@TreasuryStrategies.com Bob Stark Kyriba Vice President, Strategy bstark@kyriba.com @treasurybob Find this presentation and others at Our website www.treasurystrategies.com Our YouTube Channel https://www.youtube.com/c/treasurystrategiesincconsulting
  31. 31. Treasury Strategies Treasury Technology Practice Solutions for Treasury Departments Solutions for Technology Vendors • Pre-implementation Best Practices Review • Process Review & Re-engineering • Gap Analysis with Current Technology • Corporate SWIFT Connectivity • Technology Selection • Technology Implementation & Optimization • Strategic Roadmap • Implementation Resource Partnering • Functionality Enhancement • Business Strategy Our expertise in treasury best practices, knowledge of technology solutions and unbiased viewpoint provide our clients with an experienced team to guide them through the technology maze. Clients • Corporations • Not-for-Profit Organizations • Public Sector Organizations • Technology Vendors 31
  32. 32. About Treasury Strategies, Inc. Who We Are Treasury Strategies, Inc. is the leading treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. What We Do Corporations We help you maximize worldwide treasury performance and navigate regulatory and payment system changes through a focus on best practices, technology, liquidity and controls. Treasury Technology We provide guidance through every step of the technology process – which includes creating a roadmap, selection, implementation and optimization. Our expert approach will uncover opportunities to optimize the value of your treasury through fully integrated technology solutions. Financial Services Our experience, analytic approach and benchmarks provide unique consulting solutions to help you strengthen and grow your business. www.TreasuryStrategies.com/ content/networking-communities @TreasuryStrat Accreditations Connect with Us Locations Chicago • London • New York www.youtube.com/c/treasurystrate giesincconsulting 32
  33. 33. About Kyriba Who We Are Kyriba is the global leader in cloud Proactive Treasury Management. CFOs, treasurers and finance leaders rely on Kyriba to optimize their cash, manage their risk, and work their capital. Our award- winning, secure, and scalable SaaS treasury, bank connectivity, risk management and supply chain finance solutions enable some of the world’s largest and most respected organizations to drive corporate growth, obtain critical financial insights, minimize fraud, and ensure compliance. Key stats • Founded in 2000, based in San Diego • 1,000+ clients, 45,000+ users, 100+ countries • 400+ staff in 10 corporate offices • 150+ new clients in 2015: 98% loyalty rate • Fastest-growing treasury management systems vendor • Clients include BBC, Qualcomm, Yokohama, Symantec Locations San Diego • New York • London Paris • Amsterdam • Tokyo Singapore • Hong Kong • Dubai Rio de Janeiro twitter.com/kyribacorp linkedin.com/company/kyriba-corporation Connect with Us 33

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  • StephaneCurcio

    Apr. 4, 2016

In this webinar, Kyriba and Treasury Strategies reviewed the different types of forecasts, approaches to data gathering / modeling / compilation, and the use of technology to improve forecasting. Gained an understanding of the issues associated with each part of the forecasting process and alternate approaches to create, update and refine your forecasting process.

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