Deloitte CRG Cash Flow Management: A balancing act of technical know-how and finesse

Transcription

1 Deloitte CRG Cash Flow Management: A balancing act of technical know-how and finesse Deloitte Transactions and Business Analytics LLP May 22, 2014

2 Disclaimer This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation. 1

3 Overview of The 13-week Cash Flow What is it? A tactical tool to help companies understand and manage short-term liquidity When is a Company (typically) required to create one? During a liquidity crisis or at times of distress What purpose does it serve? Provides greater visibility into potential upcoming points of liquidity difficulty, while allowing a better understanding around which to frame a restructuring What deliverables may be submitted to the stakeholders? 13-week cash flow forecast (summary level) Borrowing base (if applicable) Weekly forecast vs. actual (variance report) How does the 13-week cash flow compare to an integrated business plan model? Tactical vs. strategic view of the near term Indirect and/or direct in integrated model vs. direct method in 13-week cash flow Always perform analysis on a book basis, not a bank basis 2

4 13-week Cash Flow Forecast Example Week Count Total Sales and Receipts Operating Disbursements Non-operating Disbursements Revolver and Availability 3 Days Week Ending Projection Period Jan 25-Jan 1-Feb 8-Feb 15-Feb 5-Apr 12-Apr Total Total Sales 2,000 6,500-2, ,450 Cash Receipt Operating Receipt 3,500 5, , ,750 36,200 Excess Inventory Receipt.. 1,500 Total Receipt 3,500 5, , ,750 37,700 Disbursement Vendor Payment 2,000 3,750-1, ,950 22,530 Gross Payroll ,063 Rent and Utilities Equipment Leases ,500 Property Tax ,000 General Insurance Other Total Op. Disbursements 2,938 4,113 1,775 1, ,888 38,043 Net Operating Cash Flow (1,275) 3,638.. (2,138) (343) Non-operating Disbursement Interest Payment ,349 Capital Expenditure ,500 Professional Fee Total Non-op. Disbursements ,149 Net Cash Flow (1,876) 3,513.. (2,263) (6,491) Revolver roll-forward Beginning revolver 20,500 20,063 19,300 21, ,729 20,500 Add: draw - - 1, ,263 18,218 Minus: Paydown (438) (763) - (3,513).. - (11,727) Ending revolver 20,063 19,300 21,176 17, ,991 26,991 Availability (**) 2,938 3,586 1,824 3,537.. (5,308) (*) Check outstanding is as of Jan 14, 2013 (**) Availability is the difference between revolver (after covering float) and the lower of borrowing base/facility limit of $25,000

5 Borrowing Base Example Week Count Accounts Receivable Inventory Total Collateral Value Revolver and Availability Days Week Ending Projection Period Jan 25-Jan 1-Feb 8-Feb 15-Feb 5-Apr 12-Apr Accounts Receivable Ending A/R 13,500 15,000 14,500 12, ,250 Ineligible 2% (270) (300) (290) (249).. (185) Eligible A/R 13,230 14,700 14,210 12, ,065 Collateral A/R 85% 11,246 12,495 12,079 10, ,705 Inventory Ending Inventory 33,505 29,880 32,318 30, ,200 Ineligible 5% (670) (598) (646) (616).. (744) Eligible Inventory 32,835 29,282 31,671 30, ,456 Collateral Inv 50% 16,417 14,641 15,836 15, ,228 Limit at $ 18,500 Collateral Inv - Applied 16,417 14,641 15,836 15, ,228 Total Collateral Value 27,663 27,136 27,914 25, ,933 Minus: Open L/C (2,250) (2,250) (2,250) (2,250).. (2,250) Total Borrowing Base 25,413 24,886 25,664 23, ,683 Availability Calculation Lower of Borrowing Base or Limit 25,000 24,886 25,000 23, ,683 Ending Revolver 20,063 19,300 21,176 17, ,991 Plus: check outstanding (float) (*) 2,000 2,000 2,000 2, ,000 Ending Revolver (after covering float) 22,063 21,300 23,176 19, ,991 Availability (**) 2,938 3,586 1,824 3,537.. (5,308) (*) Check outstanding is as of Jan 14, 2013 (**) Availability is the difference between ending revolver (after covering float) and the lower of borrowing base or facility limit of $25,000 4

6 Weekly Forecast vs. Actual Variance Analysis Example Current Week Cumulative Notes Line Items (same as 13-week Cash Flow) Variance Testing (if applicable) 1-week w.e. Jan 18 4-wks w.e. Dec 28 to Jan 18 Forecast Actual Variance Forecast Actual Variance Total Sales 2,000 1,850 (150) 12,800 12,100 (700) Timing issue on. Cash Receipt Operating Receipt 3,500 3,100 (400) 11,900 9,850 (2,050) Paperwork mismatch. Excess Inventory Receipt Total Receipt 3,500 3,100 (400) 11,900 9,850 (2,050) Disbursement Vendor Payment 2,000 1, ,500 6, Certain disputed items not paid Gross Payroll ,450 2,510 (60) Overtime was slightly lower Rent and Utilities (25) Lower-than-projected electricity Equipment Leases - 50 (50) (10) One item wasn't paid. Property Tax General Insurance (3) Other (375) Total Op. Disbursements 2,938 2, ,988 10, Net Operating Cash Flow (188) 912 (711) (1,623) Non-operating Disbursement Interest Payment (45) Capital Expenditure (50) 500 1,050 (550) One machine broke down Professional Fee (15) Total Non-op. Disbursements (50) 1,020 1,630 (610) Net Cash Flow (238) (108) (2,341) (2,233) Variance Testing Lower of 10% of Total 4-wk Cumulative Disbr 12,008 12,191 (183) Variance Explanation (for 1-week w.e. Jan 18) -1.5% = Favorable variance (% of forecasted disbursement) 5

7 Understanding the assumptions and corresponding results The assumptions embedded within the cash flow forecast should map and mirror business movements through a company, reflecting a clear picture of liquidity: For example, in a negative cash flow situation: How much is the weekly cash burn rate? How long is the cash runway? Is the deficit liquidity temporary or permanent? In case of a positive cash situation: Is it due to improving operations or to changes in working capital? Understand how working capital moves in conjunction with the business operations: Accounts receivable ( A/R ) Changes in A/R component Inventory Events, such as inventory reduction, and how they impact borrowing base Accounts Payable ( A/P ) Potential pay-down of A/P, or aging of certain categories Be aware of non-a/p disbursements captured in accruals 6

8 Understanding the assumptions and corresponding results (cont d) Use the cash flow as an integral part of the planning process Who is involved in the preparation? Collaboration from various departments (e.g., sales, operations, finance, accounting, etc.) Assign responsibility to management in charge of discrete item spending How is the weekly (daily) cash management process conducted? Determine who handles communications with the vendors and what message is delivered Develop a disbursement approval process and delegate check signing authority Use the weekly variance analysis as a communication and learning tool Understand importance of cumulative variance analyses Establish and observe the trend over time Use components of income statement ( P&L ) revenue and expenses to sense-check the cash flow 7 Collections Material vendor payment goes hand-in-hand with COS of material Certain accrual item reflects total payment for the whole year

9 Various levers on cash flow management Levers on cash flow management: Revenue and receipts Cash collections acceleration Aged receivables settlement Asset monetization Disbursements Equipment rationalization Vendor management Non-operating receipts or disbursements Contribution from stakeholders, such as over-advance or equity 8

10 Leading practices in preparing a 13-week Cash Flow Document assumptions behind the cash flow forecast The forecast should reflect the current state, not a pretty rainbow scenario Reasonable operational reason to support major assumption changes The borrowing base is linked to the cash flow forecast Roll-forward of working capital accounts that is easy to follow Other considerations Under commit and over deliver Company should not play the float game Ensure that all trust-fund type payments are identified and covered 9

11 Leading practices in preparing a 13-week Cash Flow Be there in person to manage cash Quick reaction is needed on many occasions Having a person in charge with good understanding of all moving components is critical Develop a discipline of routine communications/calls on cash flow Do not hide from stakeholders Avoid general modeling errors Certain categories go negative, such as accounts receivable Revolver draw does not have a limit Accounts payable increases significantly Mathematical errors, row and columns do not tick and tie 10

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18 Presenter Biographies

19 Presenter Biographies Contact Information: 2200 Ross Avenue, Suite 1600 Dallas, TX D: F: C: Industries: Agribusiness Consumer Products Energy Health and Wellness Manufacturing Retail Telecommunications Transportation Education: B.B.A., The University of Texas at Austin Soegiono Hadiwijaya Senior Vice President, Deloitte CRG Deloitte Transactions and Business Analytics LLP Soegiono Sugi Hadiwijaya has more than 10 years of combined experience in financial services and turnaround management. He has provided financial advisory and operational restructuring services both out of court and during Chapter 11 proceedings, assisting companies with tasks such as cash management, securing of financing, business plan assessment, M&A activities, and financial modeling. Mr. Hadiwijaya is particularly skilled at helping companies better their value through profitability analyses, cash flow projections, budgeting, and strategic planning. Mr. Hadiwijaya also authored and served as lead instructor for Cash is King, the Deloitte CRG nationwide training program on 13-week cash flow forecast and liquidity management. A few noteworthy engagements include: Assisted an $8.5 billion poultry processor during its Chapter 11 restructuring process, where he managed cash and liquidity as part of the DIP arrangement, created the five-year business plan and financial projection, worked with management on financial analyses regarding operational strategies and assisted in the negotiations of the restructuring plan, exit financing and mediation proceeding on chicken plant closure Provided financial advisory services for a specialty custom-engineered steel enclosure manufacturer, where he managed cash flow, developed business plan and assisted in operational turnaround efforts such as developing project dashboard and assessing sales quote model Provided financial advisory services for a regional highway contractor, where he managed cash flow, led negotiations with stakeholders on liquidity matters and assisted in lender negotiations Managed expert witness engagements in regards to post-confirmation cram-down interest rate for commercial real estate portfolio, where he developed the expert report and created analyses on Till methodology application Designed a complex cash-collections model and conducted assessment on cash-acceleration initiatives during the prepackaged bankruptcy filing of a $1 billion health club chain with more than 300 locations nationwide Performed a four-wall store profitability analysis for a $600 million Northeast-based arts and crafts retailer, where he analyzed store profitability trends and presented recommendations to management on the store footprint and closing plan Mr. Hadiwijaya also holds certifications as a Chartered Financial Analyst, a Certified Insolvency Restructuring Advisor (CIRA), and a Certified Distressed Business Valuation (CDBV). In addition, he started and co-leads the Nextgen/Young Professional initiative of Turnaround Management Association in the DFW area, and is involved in a joint education/mentoring program with the University of Texas at Dallas on its restructuring/turnaround courses. This biography may refer to client engagements performed prior to joining Deloitte Transactions and Business Analytics ( DTBA ) in the Deloitte Corporate Restructuring Group ( Deloitte CRG ). 18

20 Presenter Biographies Contact Information: 200 Berkeley Street Boston, MA D: F: C: Industries: Advertising Electronics Finance Manufacturing Staffing Telecommunications Rudolph J. Morando Jr. Senior Vice President, Deloitte CRG Deloitte Transactions and Business Analytics LLP Rudy Morando works with mid-to-large businesses in strategic and investment advisory roles. He has experience in crisis management, cash-flow management, debt restructurings, business sales, and wind-down capacities across a variety of industries. Mr. Morando is skilled in strategic planning and profitability assessments, having provided such services for a $150 million public electronics company and a similar-sized food manufacturer. He also has experience in financial analysis and diligence, operational assessments & process improvements, working capital improvement, vendor management and stakeholder communications. A few notable engagements include: Provided financial diligence for a $100 million brewery for potential investor Conducted business plan assessment for a $110 million printing company Prepared DCF analysis 200+ portfolio properties for a $500 million REIT company Led debt and operational restructuring of a $300 million staffing company Created cash management tools for a $100 million telecommunications company Developed 13-week cash flow for a $400 million ad placement company Developed 13-week cash flow and variance reporting for a $100 million jewelry manufacturer Produced inventory liquidation analysis for a toy company Education: B.A., Northeastern University Previously, Mr. Morando worked for a leading global finance company where he provided financial advisory services to several small businesses. He also served as a strategy analyst in the telecommunications sector and as an associate within an earlystage venture capital business in Providence, Rhode Island. Mr. Morando is a co-developer and instructor of Cash is King, Deloitte CRG s training program on 13-week cash flow development, and of Three Statement Modeling, the Deloitte FAS training program on integrated financial modeling. In addition, he is a Certified Insolvency and Restructuring Advisor (CIRA), a Certified Turnaround Analyst (CTA), and a member of TMA Global s Certification Oversight Committee. This biography may refer to client engagements performed prior to joining Deloitte Transactions and Business Analytics ( DTBA ) in the Deloitte Corporate Restructuring Group ( Deloitte CRG ). 19

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