Cash & Liquidity ManagementCash ManagementCash ForecastingFour skills for effective cash forecasting

Four skills for effective cash forecasting

Effective cash forecasting is one of the central pillars of treasury, and getting it right demands a joined-up approach that takes into account four key factors. CashAnalytics' Martin Gillespie outlines the essential skills required.

An accurate cash forecast is an invaluable asset to aid strategic business decision making. However, without the right tools, managing a cash forecasting process can be challenging. Historically, the processes involved have been manual and time-consuming, and treasury and finance teams frequently have struggled to obtain the information they need from other departments. Because forecasting plays a crucial role in supporting key business decisions, from M&A to investment planning, it’s essential to approach the task armed with the necessary tools.

These should include both technology solutions and robust forecasting skills. Sophisticated forecasting solutions can play a vital role in automating processes and freeing up time for forecasters to direct their attention to the most value-adding areas of forecasting. But alongside the right system, the effective forecaster will also need to draw upon a constellation of hard and soft skills, from technical know-how and data modelling skills to business acumen and the ability to communicate effectively.

  1. Know your organization
    There’s no one-size-fits-all approach where forecasting is concerned, so it is essential to tailor the chosen approach in line with the company’s needs and objectives. While the high-level goal may be to make sure enough cash is available to meet obligations, in practice companies tend to use the cash forecast for a wide range of purposes, such as reducing external funding, optimizing liquidity or gaining visibility over covenant levels. The company’s specific requirements will determine the type of forecast needed, so the forecaster will need a deep understanding of how the business actually uses the forecast and what role the forecast is expected to fulfil. The forecaster should also have a clear view of how the company fits into the wider marketplace, from its customer base and sales model to its competitive positioning.
  2. Tap into the right data sources
    Robust technical knowledge is a prerequisite when it comes to effective forecasting. Alongside input from the relevant business units, the forecast will need to be built on accurate and timely data from bank statements, the Enterprise Resource Planning (ERP) system and the Treasury Management System. An effective forecaster therefore needs to know how to source the necessary data from all the relevant systems – and which interfaces and processes will be needed to collate that data in the right way.
  3. Manage data effectively
    Armed with top-notch data management skills, the effective forecaster can go deeper into the data in order to fine tune the forecast. Given that historical data plays a key role within the forecast, it’s important to be able to put that data into context and weed out anomalies – a major acquisition, for example, may not be representative of usual flows, although other variations may be less clear cut. Forecasters can also make use of data modelling applications to model future events or scenarios, and draw upon their analytical skills to gain actionable insights from complex data sets.
  4. Communicate clearly
    The input provided by subsidiaries and business units will be essential to the success of the forecast, but obtaining that information on a timely basis is not always straightforward. Effective forecasters will need strong communication skills in order to convey the importance of the exercise to the relevant people and explain what information is needed. Those communication skills will also come into play when securing executive sponsorship for a new forecasting process, and when explaining the output of the forecast to the Board of Directors, shareholders or CEO.

Bringing it all together

In conclusion, effective forecasting requires a wide and varied skillset. When paired with a sophisticated technology solution, the results can be powerful: forecasters will be better placed to direct their time to the greatest effect, draw out valuable insights from the forecasting exercise and tailor the process over time to address any variances.

About CashAnalytics

CashAnalytics has helped many companies across a broad range of industries to build and maintain best-in-class cash forecasting processes that produce the highest quality reporting and analytics outputs. If you would like to see a demonstration of how software and automation can overcome these challenges, please contact us directly.

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