Search
  • david kelin

Roll with the times - Rolling Cash Forecasts


David Kelin June 25 2020

Rolling cash forecasts allow companies to manage their cash on a more granular basis. Knowing where your cash is (or isn’t) today or in the short term future is even more vital to your company’s financial future. Rolling forecast techniques ensure a regular recalibration of the plan bringing a degree of accuracy not possible with other forecasting methods.

So what is a rolling forecast?

A rolling forecast is a management tool that enables companies to continuously plan (i.e. forecast) over a set time horizon.

That time horizon is defined according to the way the organisation conducts its business. For example, a company in the retail or hospitality industry might want to plan ahead in a shorter time horizon than a manufacturing company. The decision relates around the speed in which information that goes into the forecasts or plans can change.

A rolling forecast will take into account such changes and is therefore more accurate and reliable to a traditional or static forecast that only creates new forecasts towards the end of the defined period. So a rolling weekly forecast for example, is one that changes at set times during the week, maybe the end of the week to reflect additions or updates to the forecast as they occur.


The advantages of a rolling weekly forecast

Choosing such a time interval forces companies to really understand their business at a granular level compared to monthly or quarterly forecasts when significant cash inflows or outflows might be missed.

So what is the best interval period to forecast? As mentioned above it all depends on the nature of the business but as a rule of thumb the optimal time period should extend far enough into the future to allow you to react, but not so far out that the degree of certainty becomes zero.

Everything comes around to the adage “Cash is King” and the closer the forecasting interval period is to the business the more reliable so allowing companies to truly understand how much cash there is in the business.

Cash forecasting enables companies to get a handle on their liquidity needs, rolling cash forecasts adds a detail and accuracy and in times of uncertainty this is not just a nice to have but arguably a necessity.

In essence the rolling forecast involves a re-calibration of forecasts and resource allocation every week, month or time period the company chooses to reflect what is actually happening in the business.

Further Advantages of a rolling cash forecast

1. Promotes a better understanding of customers and suppliers.

By taking a more granular approach to forecasting companies find that they gain a greater understanding of their customers and suppliers and can plan accordingly by:

· Quickly identifying those customers who pay slowly and dealing with them.

· Identifying those suppliers who may offer early payment discounts or other financing arrangements

· Identifying those suppliers who might be more relaxed about payment terms and use this to the company’s advantage.

2. Helps companies understand the cost of growth.

Understanding the short term liquidity of the company helps in the planning of capital expenditure and other investment that needs to be made ahead of the revenue that is associated with the growth that these investments should bring.

3. Reduces the cost of capital.

Forecasting by its nature gives a company a greater understanding of it liquidity position. This in turn allows them either minimise borrowing or maximise investment opportunities.

4. Helps treasury improve communication within the company.

More granular forecasts require greater communication from treasury which can often mean that they get closer to the business for example, sales, HR, purchasing etc. This can have a positive impact across the organisation.

5. Stress tests the business.

A rolling forecast can also be used to answer “what if” questions. For example, what would happen if the company received an unexpected large order or a key supplier changed it credit terms. What would happen during a global economic slowdown.

By getting into the habit of updating cashflow on a regular basis the company obtains a better picture on how the business works and which areas drain cash from the business. Concentrating on these areas will help liquidity and potentially solvency of the business

6 views

Recent Posts

See All

Netting, What is all the fuss?

What is Intercompany Netting? Large, multi-national or multi-franchise, organisations have a number of operational subsidiaries who regularly do business with each other, leading to a complex, intra-g

00 44 7786 331313

©2019 by DNA Treasury Ltd. Proudly created with Wix.com