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Cash & Liquidity Management
Published  6 MIN READ
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Because It’s Worth It!

It is often argued that cash flow forecasting is not worth the effort, as the time and energy needed to achieve a meaningful forecast is disproportionate. Ask an accountant about a consolidated cash flow, and you will hear a long list of reasons why it is not as simple as it sounds, and takes longer than anticipated. Just think of what cash items have been parked in the balance sheet, pending clarification. If it is hard to do a cash flow statement using historic actuals, then relying on our own guesswork is even harder.

My personal experience as a tutor in corporate treasury, speaking about cash flow forecasting, is that delegates sometimes attend a workshop on cash flow forecasting with, broadly, the following mindset:

  • cash flow forecasting in my organisation is poor. Actuals are nowhere close to what had been projected.
  • attending a cash flow forecasting workshop will help me find that magic formula that will make my forecasts more accurate.

To help these delegates understand their real issue properly, I like to respond by asking, What is the objective of cash flow forecasting? Is it about guessing a number as accurately as possible? That is sometimes the vague idea in the treasurer’s mind when starting a cash flow forecasting process. It is then hoped that businesses are able to forecast inflows and outflows, so that treasury can define whether there will be a cash deficit or excess and take appropriate decisions; borrowing or investing surplus funds to optimise interest returns. That view of cash flow forecasting is often at the root of the problems that follow: we are looking at the bottom line with a magnifying glass.

If it is hard to do a cash flow statement using historic actuals, then relying on our own guesswork is even harder.