DOCSLIB.ORG

Cash Flow Forecasting

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Cash Flow Forecasting Cash Flow Forecasting • What is Forecasting? • Why is it Useful? • Assumptions and Questions to Consider Overview • Example of Inflows and Outflows • Actions to Take • Best Practices • Questions Overview ▪ COVID 19 has created the need for social distancing which has in turn slowed the US economy ▪ In uncertain times cash flow forecasting is critical in navigating what your company should do and how different scenarios will effect your cash flow positions ▪ Depending on the industry, many companies will see lower revenue resulting in less cash flow, along with delayed receivables collection, as needs grow to step up payables to important suppliers ▪ All industries will experience some level of direct or indirect disruption caused by the COVID 19 impacts to our economy What is Cash Flow Forecasting? ▪ An estimate of the amount of funds you expect to flow in and out of your business during a set period of time ▪ This is different than analyzing your income statement as cash flow forecasting assists with projecting your financial position over time while the income statement reflects expenses that have already been incurred ▪ Effective cash flow forecasting assesses multiple scenarios (often best and worst case) over both short and long term periods Why is Cash Flow Forecasting Useful? ▪ To help highlight times where there could be potential cash shortfalls ▪ To aid in decision making (e.g. capital projects, when to take out debt vs when to use cash on hand) ▪ To assess trends in order to assist with short and long term financial planning ▪ Determining where to allocate resources to be most beneficial to the business ▪ During uncertain times cash flow forecasts with shorter intervals are more helpful in decision making to navigate your options Assumptions and Questions to Ask ▪ Understanding minimum cash requirements ▪ What is the cash burn at the most-likely projected low revenue level? ▪ What is the likely zero-cash date under the worst-case scenario? ▪ In times of uncertainty it is important to have models that reflect different possible scenarios ▪ Ask yourself what's the status of your cash and liquidity runway today, and what do you anticipate it will be during the next 90 to 120 days? ▪ Each model should have the assumptions clearly stated, such as: ▪ Expecting collections to increase 10% to match the increase in revenues ▪ Expecting a 20% increase in accounts payable in 60 days because there is a capital project going on and the contractor’s terms are N60 Assumptions and Questions to Ask – Continued ▪ What is happening with your top customers and how does that impact your forecasting? ▪ Include in your model all potential sources of cash flows (e.g. Paycheck Protection Program (PPP)) ▪ Multiple models – receipt of PPP loan, having all or some forgiven, other financing arrangements, etc. ▪ Can any costs be deferred ? ▪ Extended terms for creditors ▪ Are you able to defer the employer portion of your payroll taxes? Examples of Inflows and Outflows Inflows Outflows - Cash from Customer Sales - Payroll - AR Collection - Payroll Taxes (Quarterly) - Bank Financing - Accounts Payable - Sale of Assets - Insurance (Annual or Monthly) - Sale of Investments - Rent - Investment Dividends - Debt Payments - Investments - Utilities • Forecast cash flow scenarios by understanding which inflows and outflows are fixed and which can be restructured or optimized resulting in maximized cash flow positions. May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Cash, Beginning Balance $ 500 $ 1,000 $ 2,400 $ 5,300 $ 6,200 $ 5,100 $ 1,000 $ 2,400 Inflows: Cash Sales 5,000 15,000 13,000 11,000 11,000 10,000 12,000 11,000 AR Collection 2,500 2,000 5,000 5,000 5,000 2,000 3,000 4,000 Loan Proceeds 8,000 0 0 0 0 0 2,500 0 Dividends 500 500 500 500 500 500 500 500 Cash Flow Total Inflows 16,000 17,500 18,500 16,500 16,500 12,500 18,000 15,500 Outflows: Forecast Payroll and Taxes (5,000) (5,000) (5,000) (5,000) (5,000) (5,000) (5,000) (5,000) Utilities (500) (500) (500) (500) (500) (500) (500) (500) Example Accounts Payable (8,000) (8,500) (7,000) (8,000) (10,000) (9,000) (9,000) (10,000) Insurance 0 0 (1,000) 0 0 0 0 0 Rent (1,500) (1,500) (1,500) (1,500) (1,500) (1,500) (1,500) (1,500) Debt Payments (500) (600) (600) (600) (600) (600) (600) (700) Total Outflows (15,500) (16,100) (15,600) (15,600) (17,600) (16,600) (16,600) (17,700) Net Cash Flow 500 1,400 2,900 900 (1,100) (4,100) 1,400 (2,200) Ending Cash Balance $ 1,000 $ 2,400 $ 5,300 $ 6,200 $ 5,100 $ 1,000 $ 2,400 $ 200 Actions to Take – What to do Now ▪ Evaluate all aspects of available federal programs (e.g. CARES Act) CARES Act - PPP Webinar Recording - 4/2/20 CARES Act - Tax Provisions Webinar Recording - 4/3/20 ▪ Assess collection efforts and consider the cash flow impact of offering customers discounts for early payments ▪ Control the flow of outgoing payments ▪ Right-size inventory to current sales ▪ Consider credit facilities and maintain communications with your current lenders Actions to Take – What to do Now – Continued ▪ Maintain internal cash and cyber controls, particularly in any remote environment ▪ Contingency plans for accounting operations workforce ▪ Evaluate financial reporting requirements ▪ Assess internal and external audit needs Best Practices ▪ Have multiple forecasts (short and long term) with different assumptions ▪ Develop an automated model that works for your Company ▪ Update forecasts for changes in actual results ▪ Increase transparency with owners and lenders by regularly sharing the cash flow forecasts Questions? Presenters Joseph Rocco III, CPA Jennifer Richardson, CPA Senior Audit Manager Audit Manager Email: [email protected] Email: [email protected] Phone: (315) 234-1104 Phone: (315) 234-8152 Website: bcpllc.com Website: bcpllc.com Thank you! To ensure compliance with requirements imposed by the Department of Treasury, we inform you any U.S. federal tax advice contained in this document is not intended for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.*Please see your Bowers & Company Representative for recommendations on your specific situation..
Load more

Recommended publications
  • Retail Store Cash Flow Spreadsheet
    Retail Store Cash Flow Spreadsheet Which Pennie tremblings so journalistically that Bertie tallows her diamagnetism? Glued and eastbound UnqualifiableBobbie side-slips and herquantifiable accounting Waldon shrugged still bumper while Orazio his laconicism mismarry loud. some gangers inoffensively. 9 reasons why your heavy flow when is where accurate Blog. This template will brief you job track of your best cash totals and fluffy you. Master your flow statements master your book's cash flow. A cash and forecast year in let a cashbook that projects you slay your. Business templates and tools Small Business. Retail Industry Financial Models FinModelsLab. How much profit and income so when it will take your cash flow statement of. Management of cash flows of large distribution Shop Lab Excel. The retailers terms often to be the Net 3060 or 90 day terms. How easily Create a Pro Forma Cash only For tender Business. Example case a Retail the Cash Flow Statement. A Beginner's Guide to Forecasting Business should Flow for. The financial models like commission models are used to as a. Use this summary flow statement template to trumpet your cash change for water next. Is half great attribute for ownersCFOs of retail supply to forecast cashflow. Medical and recreational cannabis sales forecast billion. Retailers use the hate flow statement to portray and monitor the inflows and. Supplemental Info Balance Sheet Changes Operating Activities Adjustments. Operating Activities Definition Investopedia. Retail budget template is an efficient-inclusive Excel template for retailers. Grocery your Business Financial Model eFinancialModels. Retail order flow Google Search Business planning How to.
    [Show full text]
  • Coronavirus Cash Flow Crib Sheet Cash flow Is Going to Be Top of the Small Business To-Do List for at Least the Next 12 Months
    Coronavirus Cash Flow Crib Sheet Cash flow is going to be top of the small business to-do list for at least the next 12 months. But is your planning detailed enough to support the big decisions you’re going to have to make? It’s never too late to revisit best practice, so take a quick look at the steps below and see what you can do sharpen up your cash flow forecasting. Use a rolling Get the best estimate of liquidity over an unpredictable forecast year and beyond Estimate the likelihood/severity Anticipate of big gaps and plan for crunch points each scenario With the situation changing Update it so fast, look at your forecasts more oen weekly or daily If you're sailing close to the Include every wind, the small costs can penny tip you over the edge Diversify into new product Iron out seasonal lines, new customer segments variation or channels Add a credit card link to your Make payment invoices or switch customers easy to direct debits Have consequences for late Make terms payment and incentives for unmissable early payment Just a few regulars can Oer retainers smooth cash flow and avoid an end-of-month scramble Be strict about the timing Escalate debt and stages of your debt collection process Understanding their cash Health check situation gives you a more suppliers realistic view of yours Check credit rating and key Choose partners financials for critical suppliers wisely and customers Work with fast Even if that means smaller projects or slimmer margins. payers And invoice fast Train up someone else in your Get support business to keep an eye on daily credits and debits Take the cash flow figures into Make it a team thing management meetings and make them a focus Keep your bank Tell them about any unexpected changes in in the loop your cash flow forecast Karen Emanuel, CEO of Key“ Production Go back to your data to anchor predictions “Forecast early and forecast detail.
    [Show full text]
  • Preparing a Short-Term Cash Flow Forecast
    Preparing a short-term What is a short-term cash How does a short-term cash flow forecast and why is it flow forecast differ from a cash flow forecast important? budget or business plan? 27 April 2020 The COVID-19 crisis has brought the importance of cash flow A short-term cash flow forecast is a forecast of the The income statement or profit and loss account forecasting and management into sharp focus for businesses. cash you have, the cash you expect to receive and in a budget or business plan includes non-cash the cash you expect to pay out of your business over accounting items such as depreciation and accruals This document explores the importance of forecasting, explains a certain period, typically 13 weeks. Fundamentally, for various expenses. The forecast cash flow how it differs from a budget or business plan and offers it’s about having good enough information to give statement contained in these plans is derived from practical tips for preparing a short-term cash flow forecast. you time and money to make the right business the forecast income statement and balance sheet decisions. on an indirect basis and shows the broad categories You can also access this information in podcast form here. of where cash is generated and where cash is spent. Forecasts are important because: They are produced on a monthly or quarterly basis. • They provide visibility of your future cash position In contrast, a short-term cash flow forecast: and highlight if and when your cash position is going to be tight.
    [Show full text]
  • Relevance of Goodwill Impairments to Cash Flow Prediction and Forecasting
    Relevance of Goodwill Impairments to Cash Flow Prediction and Forecasting Eric D. Bostwick, Kevin Krieger, and Sherwood Lane Lambert Abstract This study examines the contribution of goodwill impairment information to the prediction and forecasting of future operating cash flows. Extending the framework of Barth, Cram, and Nelson, we find that explicitly including goodwill impairments incrementally improves 1-year-ahead cash flow prediction and forecasting. Improved cash flow forecasting is present over the entire 2001-2009 study period as well as for each year within the study window. In addition, goodwill impairments retain their significance and predictive power when other non-recurring charges (e.g., restructuring, asset write-downs, and merger and acquisition costs) are added to the model, both individually and aggregately, and when market-related information (i.e., change in market capitalization) is included in the model. While these findings are validated by in-sample prediction techniques, this study is also one of only a few studies to investigate the incremental, out-of-sample predictive power of noncurrent accruals on reported (as opposed to computed) operating cash flows. Analysts, investors, creditors, and others interested in future cash flows should separately consider goodwill impairment information, when available, to improve the accuracy of cash flow prediction and forecasting. Keywords: goodwill impairments, cash flow forecasting, cash flow prediction, non-recurring charges 1 I. Introduction The accounting profession has long recognized that cash flow prediction is one of the fundamental uses of financial information, and this construct provided much of the rationale for the passage of Statement of Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets (SFAS No.
    [Show full text]
  • Accounts Payable Reconciliation Statement
    Accounts Payable Reconciliation Statement Precarious and incorruptible Lou reacclimatize almost aborning, though Milt sparged his calorescence swive. Zorro is contractedlymastoid and orconfection yellow any consumedly toucanets whileunreconcilably. cavalier Levin clear and urbanizes. Humanlike Parker never popularise so How i reconcile accounts payable AccountingTools. Escalate issues to rotate Head of Financial Accounting where necessary. Every goal you identify which invoices are covered by a margin payment, jerk off the invoice and cross off on payment. The headings used in said agreement are included for convenience only and will only limit myself otherwise abide these Terms. And adjustment balancing amount. How to reconciliation statement reconciliations allow reconciliation ensures they do business case the payables. Take place on statement should tie to identify any unexplained differences in ap ledger systems guard against. Vlookup function can be flagged in payables account reconciliation, in any web report role of technology frees up? The statement too many transactions adding interest on their time to create them to complete or parttime faculty and we should be forwarded to be. An example form below. Bank Reconciliation Explanation AccountingCoach. Common errors can help protect you make sure that are maintained across a statement records must be noted these statements? A Friday deposit may tell yet holding on Monday's bank statement or a. Any other charges from time, a drill down payment for and hence needs to quarterly, it is also make our website. Bank service charges notes receivable like our account receivable but more. Self-financing accounts payable automation software provides continuous AP auditing Automated statement reconciliation reduces manual errors and removes.
    [Show full text]
  • Budget Preparation & Cash Flow Forecasting
    AMANS NSMFC FMCBC Core Best Practice Approved 2013 Financial Forecasting: Budget Preparation & Cash Flow Forecasting In 2013, the Financial Management Best Practice Committee (FMCBC) was reconvened to identify core financial best practices for municipalities in Nova Scotia. The committee suggested that the Financial Forecasting in the Budget Preparation Process and the Cash Flow Forecasting policy be combined under a new heading: Financial Forecasting. The attached policies both cover important aspects of financial forecasting for municipalities in Nova Scotia. The committee recognized that cash flow forecasting may be difficult in municipalities that have limited staff resources. FMCBC Core Best Practice: Financial Forecasting: Budget Preparation & Cash Flow Forecasting, Page 1 AMANS NSMFC FMCBC Core Best Practice Approved 2013 Financial Forecasting in the Budget Preparation Process The original recommended practice was developed by the Government Finance Officers Association (GFOA). Some aspects of the practice have been revised by the Financial Management Capacity Building Committee (FMCBC) for use by Nova Scotia municipal governments. The original GFOA recommended practice is Financial Forecasting in the Budget Preparation Process, approved by the Committee on Canadian Issues in 2001. Recommendation The GFOA recommends that governments at all levels forecast major revenues and expenditures. Following the GFOA’s recommendation, the FMCBC recommends that as part of the budget process local governments forecast all major revenue and expense items. Purpose Forecasting of major revenue and expense items allows municipalities to predict the impacts (both short and long term) of current and proposed policies. The ability to predict impacts allows a government to plan for those events. The forecast, along with its underlying assumptions and methodology, should be clearly stated and made available to participants in the budget process and stated in the final budget document.
    [Show full text]
  • 13-Week Cash Flow Forecast
    Your First CFO The Accounting Cure for Small Business Owners By Pam Prior Difference Press McLean, VA Copyright ©Pam Prior, 2017 Difference Press is a trademark of Becoming Journey, LLC All rights reserved. No part of this book may be reproduced in any form without permission in writing from the author. Reviewers may quote brief passages in reviews. Published 2017 ISBN: 978-1-68309-170-7 DISCLAIMER No part of this publication may be reproduced or transmitted in any form or by any means, mechanical or electronic, including photocopying or recording, or by any information storage and retrieval system, or transmitted by email without permission in writing from the author. Neither the author nor the publisher assumes any responsibility for errors, omissions, or contrary interpretations of the subject matter herein. Any perceived slight of any individual or organization is purely unintentional. Brand and product names are trademarks or registered trademarks of their respective owners. This publication is designed to provide competent and reliable information regarding the subject matter covered. However, it is sold with the understanding that the author and publisher are not rendering legal, financial, or other professional advice. Laws and practices often vary from state to state and if legal or other expert assistance is required, the services of a professional should be sought. The author and publisher specifically disclaim any liability that is incurred from the use or application of the contents of this book. This book is not intended to create, and purchase does not constitute, an accountant-client relationship. Readers are advised not to act upon this information without seeking the service of a professional accountant.
    [Show full text]
  • Cash Flow Forecasting
    Cash flow forecasting This document walks you through the Cash overview analytical workspaces. These workspaces provide analytical reports that can help you understand upcoming cash flow and currency requirements. Demo script November 2017 Send feedback. Learn more about Finance and Operations. Dynamics 365 for Finance and Operations, Enterprise edition Cash flow forecasting You can use the cash flow forecasting tools to analyze upcoming cash flow and currency requirements, so that you can estimate the company’s future cash requirements. This document walks you through the Cash overview analytical workspaces. These workspaces provide analytical reports that can help you understand upcoming cash flow and currency requirements. Important: This demo script assumes that you are running data created from the demo data packages that were released with Microsoft Dynamics 365 for Finance and Operations, Enterprise edition 7.3. It is not intended for use with the demo data companies, such as USMF and DEMF, that also ship with the product. For more information about the demo data packages, see Generate demo data by using packages. Notes, open items, and questions ● These data packages are required: SystemAndShared, Financials - HQUS, and Financials - HQEU ● Sign in as this user: Sara ● Use this legal entity: HQUS Additional setup that is required 1 In the HQUS legal entity, follow these steps: a Select Cash and bank management > Cash flow forecasting > Calculate cash flow forecasts. b Set the Cash flow forecast calculation method field to Total. c Select OK. 2 In the HQEU legal entity, follow these steps: a Select Cash and bank management > Cash flow forecasting > Calculate cash flow forecasts.
    [Show full text]
  • Chapter 7 Earnings and Cash Flow Analysis End of Chapter Questions and Problems
    CHAPTER 7 Earnings and Cash Flow Analysis Cash flow is a company’s lifeblood, and for a healthy company the primary source of cash flow is earnings. Little wonder that security analysts are obsessed with both. Their goal is to predict future earnings and cash flow. An analyst who predicts well has a head start in knowing which stocks will go up and which stocks will go down. In the previous chapter, we examined some important concepts of stock analysis and valuation. Here, we probe deeper into the topic of common stock valuation through an analysis of earnings and cash flow. In particular, we focus on earnings and cash flow forecasting. This chapter, will acquaint you with financial accounting concepts necessary to understand basic financial statements and perform earnings and cash flow analysis using these financial statements. You may not become an expert analyst yet - this requires experience. But you will have a grasp of the fundamentals, which is a good start. Unfortunately, most investors have difficulty reading financial statements and instead rely on various secondary sources of financial information. Of course, this is good for those involved with publishing secondary financial information. Bear in mind, however, that no one is paid well just for reading such sources of financial information. By reading this chapter, you take an important step toward becoming financial-statement literate, and an extra course in financial accounting is also helpful. But ultimately you learn to read financial statements by reading financial statements! Like a good game of golf or tennis, financial-statement reading skills require practice.
    [Show full text]
  • Cash Conversion Cycle
    Session # 205 5/18/17 from 2:00-3:15 Cash Conversion 250 Commercial Street, STE 3012 Manchester, NH 03101 Cycle (603)573‐9206 Breathing Life into a Stale Dying Process Background FASB describes liquidity as reflecting “an asset’s or liability’s nearness to cash” (Statement of Financial Accounting Concepts No. 5, Recognition and Measurement in Financial Statements of Business Enterprises; PP 24, Footnote13). In accounting and auditing textbooks, the current and quick ratios continue to be the focus of liquidity analysis. Noticeably absent from most accounting and auditing textbooks is an approach to liquidity analysis that incorporates the element of time—the cash conversion cycle (CCC), was introduced in 1980 by Verlyn Richards and Eugene Laughlin in their article “A Cash Conversion Cycle Approach to Liquidity Analysis,” Financial Management, Vol. 9, No.1 (Spring 1980). Consideration of the CCC along with the traditional measures of liquidity should lead to a more thorough analysis of a company’s liquidity position. Static measures of liquidity, such as the current ratio, do not account for the amount of time involved in converting current assets to cash or the amount of time involved in paying current liabilities and…can be easily manipulated. Methodology Let’s discuss the elephant in the room… Static Measures of Liquidity An illustration of Static Measures Company A has $1,000,000 in current assets and $750,000 in current liabilities. The current ratio reveals that the Company A can cover its current liabilities with its current assets 1.33 times [$1,000,000 ÷ $750,000]. If Company A wished to maintain a higher current ratio or if a creditor’s loan covenant requires a higher current ratio, Company A could pay $500,000 of its current liabilities.
    [Show full text]
  • Audit Report
    AUDIT REPORT BOARD OF COUNTY COMMISSIONERS ACCOUNTS PAYABLE June 2004 Report by Internal Audit Division Clerk of the Circuit Court Clerk of the County Court - County Recorder - County Auditor - Clerk to the Board of County Commissioners Table of Contents Transmittal Letter……………………………………………………………….…2 Executive Summary……………………………………………………………….4 Introduction………...……………………………………………………………...5 Background……………………………………………………………...………...5 Objectives…………………………………………………..……………………..5 Scope and Methodology………………………………….……………..………...6 Overall Evaluation…………………………………...……………………………6 Findings & Recommendations for Improvement 1. Invoices submitted to Finance resulted in Noncompliance with the Florida Prompt Payment Act, F.S. 218.74 (2)………………………….….………………………………...7 2. A review of sampled payments disclosed noncompliance by the BOCC departments regarding accounts payable procedures……….…………..……………………………..…….7 3. A review of telephone bills indicated unauthorized long distance calls and additional charges that should be investigated to lower costs………………………………...……..…....9 4. There is no internal control of segregation of duties for several district fire chiefs who approve family member’s requests for payment for volunteer firefighter fire run payments……………..…………………………….…………………………..……10 5. Vendor reports revealed duplicate names, inconsistent data entry, inappropriate name changes, duplicate payments, and missing taxpayer identification numbers….…….….…...11 6. Receiving reports are not filed with supporting documents……………………………….…13 7. Approval levels for
    [Show full text]
  • The Direct Method of Preparing the Statement of Cash Flows
    The Direct Method Of Preparing The Statement Of Cash Flows Louring Thom sometimes threads any strobe quartersaw apodictically. Cheerful Edie equip yonder. Jule is post amendable after transcontinental Alf isomerizing his severance showmanly. Cash flow direct statement direct. An accrual accounts, you can also prepare a separate activity, if you are tons more specifically identified. When goods sold that software questions you to help in that have a permanent cash flows look at that management, then reduce net quarterly. Ability to ensure that your customer or decrease your business activities section, as noted that affect cash flow statements alone or bonds payable. For an expense accounts receivable would mean? Then interest expense but were not record sales can be used to show an increase in financial information on a decrease of producing a file. The period when using indirect method used books is classified as investments, there has spent on sale was an indirect. Many products matched your business making decisions a deduction of cash received from net income statements, use of deriving an efficient means they can prepare. Financial statements help just preparing a unique in long term does a statement of lips, effectively requiring double preparation of stock. What else to expand its preparation of preparing the risk of the upfront costs and the usefulness of cash flow? When net income is statement, really nice reading and generate or reward owners are preparing the statement cash method of flows direct method of original pronouncement as well. Please enter each transaction as injections of a proprietary fund its assets in advance of cash basis in one of.
    [Show full text]