The six cash forecasting questions every treasurer should ask

By Kyriba August 6, 2015

Before I started with Kyriba, I worked in the treasury departments of EMC and Boston Scientific, and a key feature of these roles was strategic cash forecasting. Consistent accurate cash flow forecasting is arguably the holy grail of corporate treasury. From securing liquidity to internal customers to support their local business, to providing free cash flow guidance and variance analysis to the board of directors and investors, to preparing scenario cash flow analysis to support future M&A, share buy-back or dividend strategies, corporate treasurers are tasked with a tremendous responsibility to predict the future cash flow performance of their organization.

In order for an organization’s cash forecasting program to be optimized, here are six critical questions that every treasurer should ask themselves, as well as the risks associated with them:

Question one: What am I solving for?
Subtext: Don’t waste your valuable resources
Associated risk: burning out resources for non-value added work (NVA)

Question two: Am I making the same forecasting mistakes?
Subtext: Fool me twice, shame on me
Associated risk: repeated mistakes lead to poor information and flawed business decisions

Question three: Do I understand my business?
Subtext: Corporate strategy will drive the flow of corporate cash
Associated risk: lack of insight to underlying corporate strategy will increase probability material variances

Question four: Why fund your business with external funds?
Subtext: Stop leaving money on the table and reduce interest expense
Associated risk: unnecessarily high interest expenses, opportunity risk, potential P&L impact

Question five: Direct or indirect?
Subtext: Leverage insight to provide strategic counsel to the senior team
Associated risk: misalignment in corporate finance department: similar information being disseminated to different finance teams, inefficient alignment / measurement

Question six: Do I have real-time insight to free cash flow performance?
Subtext: How to sleep peacefully at quarter-end
Risk: Possibility of missing quarterly cash flow targets, negative investor reaction, executive compensation risk

To learn more on this topic, and learn how to address each of these six questions, read our ebook, “Six questions every treasurer should ask about their cash forecasting process.”

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