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 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 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 ?

▪ 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 as cash flow forecasting assists with projecting your financial position over time while the income statement reflects 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 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 ▪ Expecting a 20% increase in 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 - Insurance (Annual or Monthly) - Sale of - Rent - - 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 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 operations workforce ▪ Evaluate financial reporting requirements ▪ Assess internal and external 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.