Optimizing Your Cash Forecast: Improving the Crystal Ball

Transcription

1 Optimizing Your Cash Forecast: Improving the Crystal Ball December 9, 2015 Presented By Jeff Diorio Treasury Strategies Managing Director Bob Stark Kyriba Vice President, Strategy Elaine Filus Treasury Strategies Principal 2015 Treasury Strategies, Inc. All rights reserved.

2 Welcome! Jeff Diorio Treasury Strategies, Inc. Managing Director Elaine Filus Treasury Strategies, Inc. Principal Bob Stark Kyriba Vice President, 2

3 Agenda Why is Cash Forecasting So Difficult? Forecasting Fundamentals Liquidity Forecasting: Overview Liquidity Forecasting: The Details 3

4 Why is it so difficult? What are your top 3 strategic challenges? 65% 59% 47% 35% 34% 31% 30% Source: TSI/Reval Treasury Benchmarking survey,

5 Polling Question 1 Ø How would you rate your current forecasting process? 5 = Excellent 1 = Poor 0 = What forecasting process? 5

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 - Ineffective forecast methodology, tools - Poor internal knowledge of cash flows - Inconsistency between short-term cash forecast and budget 6

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 Ineffective forecast methodology, tools Poor internal knowledge of cash flows Inconsistency between short-term cash forecast and budget Other 7

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 effectiveness of risk management activities Improve the comfort level of key stakeholders Improve the financial performance of the company Support Treasurer s contribution to business planning 8

9 Forecasting Fundamentals

10 Forecasting Objectives High-level blueprint of the company s financial future 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 Capital Budget vs. Liquidity Forecast Business Strategy Capital Structure 11

12 Capital Budget vs. Liquidity Forecast Business Strategy Budget Liquidity Forecast Capital Structure Budget Top-down (FP&A) vs. bottom-up (Treasury) approach to liquidity 12

13 Reconciling: Budget vs. Liquidity Reconciling budget cash with liquidity cash is difficult there are differences Budget Liquidity Pro Forma Financials GAAP Accounting Ledger Balances Long-Term (1 5 yrs) Periodic Updates Manage Liquidity Actual Cash Available Balances Less than 1 year Frequent Updates 13

14 Reconciling: Budget vs. Liquidity Reconciling budget cash with liquidity cash is difficult there are differences Budget Liquidity Pro Forma Financials GAAP Accounting Ledger Balances Long-Term (1 5 yrs) Periodic Updates 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 Liquidity Forecasting: Overview

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 Treasury Forecasts Treasury can have multiple forecasts different time horizons 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 weeks 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 They should be linked but all have different objectives and uses 17

18 Liquidity Forecasting: The Details

19 Liquidity Forecasting Cycle 5. Refinement Forecast Refinement Process Data Sources Business Units Financial Units 1. Data Gathering 2. Execution 3. Variance Analysis & Analytics Internal Systems Bank Data Centralized Collection Tool Forecasting Model Variance Analysis 4. Reporting Output Reports to Users 19

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 support data 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 assessment of the level of aggressiveness/conservativeness - Evaluate the consequences of inaccuracy - Review actions taken based on forecast 20

21 Sources of Data: Liquidity Forecasts Bank Transactions and Balances (Bank Portals) Sales Forecast (Sales Department) A/R & A/P (ERP & A/R, A/P Systems) Investment & Debt Maturities (Treasury) Liquidity Forecast Business Unit Forecasts (Subsidiaries/Affiliates) Interest Flows (ERP & Treasury) FX & Derivative Settlements (ERP & Treasury) Repetitive Payments (Various Sources: Tax, Payroll, Insurance, Accounting, Finance) Capital Expenditures (Business Planning) 21

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 Defining Methodologies One size does not fit all Consider forecasting methodology at a granular level individual cash flows Type of Cash Flow Receipts AP Disbursements Payroll and Benefits Debt-Related Expense Taxes Capital Expenditures Forecasting Methodology Accounts Receivable short-term; Sales estimates longer-term Accounts Payable short-term; Expense estimates longer-term Bi-weekly estimates based on history + info from HR Based on principal, interest, and fee information in the TMS Planned payments and estimates from Tax department Schedule of CapEx-related payments from Finance 23

24 End Result Domestic1Cash1Forecast Beginning1Balance1(MMF) Cash1Activity Expected=Receivables Expected=Payables Expected=Payroll Netting=Payments/Receipts Treasury=Wires IC=Payments/Receipts= Borrowing1Activity CP=Maturing CP=Issuance Ending1Balance 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 (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) CP=Outstanding (250.00) (625.00) ( ) ( ) ( ) ( ) ( ) All#balances#are#in#MM 24

25 Variance Analysis: What was different? 1. Variance Analysis Forecast to Actual Forecast to Forecast Multiple frequencies 2. Analyze Forecast Effectiveness By line item By time period 3. Report back to data sources 4. Update the forecast 5. Rinse and repeat 25

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 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 To Summarize... Strong liquidity forecasting is a key component of 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 Success Factors Endorsement by senior management Clearly define objectives and goals relevant to all stakeholders Develop communication channels between Treasury and data owners - Efficient, systematic data flows - Clear roles and responsibilities Create efficient, consistent methodologies Keep it simple balance precision with effectiveness Regular variance analysis for continuous improvement Collaborate with FP&A 29

30 Thank You! Jeff Diorio Treasury Strategies, Inc. Managing Director Elaine Filus Treasury Strategies, Inc. Principal Bob Stark Kyriba Vice President, Find this presentation and others at Our website Our YouTube Channel 30

31 Treasury Strategies Treasury Technology Practice 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 Solutions for Treasury Departments Pre-implementation Best Practices Review Process Review & Re-engineering Gap Analysis with Current Technology Corporate SWIFT Connectivity Technology Selection Technology Implementation & Optimization Strategic Roadmap Solutions for Technology Vendors Implementation Resource Partnering Functionality Enhancement Business Strategy 31

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. Locations Chicago London New York Accreditations Connect with Us giesincconsulting 32

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 awardwinning, 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 Connect with Us twitter.com/kyribacorp linkedin.com/company/kyriba-corporation 33