Cashflow Modelling & Scenarios
Are you aware that:
· An organisation can be profitable but still run out of cash?
· An organisation can have a forecast monthly cashflow model which shows a cash surplus at the end of each month, but run out of cash mid-month?
We have all heard the saying ‘Cash is King’, but nothing proves this more than having to tell the staff there is a delay in salary payments this month (and the stress this passes on to them).
Developing a sound cash forecast is a crucial part of running a business, especially if you are sailing close to the wind in terms of facility limits and/ or bank covenant requirements.
In order to provide the most comfort to stakeholders such as shareholders, management, and lenders, it's imperative to develop ‘what if’ scenarios around your assumption set to demonstrate that if ‘X’ happens, then we can cut back on ‘Y’ to conserve cash.
A documented assumption set also enables the inevitable variances to forecast can be readily explained. And, don’t forget to factor in income tax and GST payments!
Any forecast is an ‘art’ rather than a ‘science’ given all the variables involved but knowing in advance the levers you can pull if revenue slips or customers delay payments, reduces stress levels considerably.
At Hurricane Consulting we can critically peer-review your current cash forecast model and assumptions, suggest improvements, and stress test the model around different assumption scenarios. We are also highly experienced at creating models from scratch if required.
Depending upon the maturity of the business and the volatility in cashflows experienced (leading to continuous forecast refreshes), we may suggest investigating a software solution to streamline the generation of the cash forecast and scenarios and keep everyone in the loop.