Cash Forecasting: Setting the Table for Success

Accurate cash forecasting is all but impossible without a well defined sustainable process. A quality cash forecasting process sets the table for success and forecasting cash without one places a huge barrier to success in this inherently challenging endeavor.  The very first items of business are to define the goals and purpose of the cash forecast.  Is it a short term (daily or weekly) or longer term (monthly or yearly) forecast? Is this forecast to be used to manage daily working capital or forecast balance sheet cash? What is the desired level of accuracy? What is the feasible level of accuracy given the current resources at your disposal?

It is also important to identify all the people, processes, and technologies that affect the reporting and movement of cash within, coming in, and going out of your company. A key component of cash forecasting accuracy is to establish the highest level of visibility of cash possible. The more insight you can gain into what drives the movements of funds into and out of your organization the more accurate you can be in forecasting cash.

I would argue that it makes sense to map out all movements of funds and all parties involved (both internally and externally) that affect the reporting of funds movements, the key inputs into the cash forecast. You need to identify the factors that can affect cash forecasting accuracy and these include people and technology.

You also need to understand and manage the people you need to “get on board” to produces an accurate forecast. We have all heard the phrase “garbage in and garbage out” and this never rings more true than it does in the arena of cash forecasting. Providing those involved in the cash forecasting the incentives, tools, and training to be a productive part of the cash forecasting process produces forecasting accuracy.

Prior to worrying about what models and technology you will use to produce an accurate cash forecast you need to understand the inherent barriers to success, mitigate them, and set the table for success.

I would welcome comments including specific challenges faced in developing an effective, sustainable cash forecasting process.