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It cannot be stressed enough that the cash flow forecast is the key element of cash management. By predicting the company's cash inflows and outflows over a given period, it is an essential tool for defining the financial strategy to be implemented in terms of investment, recruitment, borrowing, etc.
Unless the company is in its very early stages, a cash flow forecast relies on analyzing past performance on the one hand and market trends on the other. However, past performance offers only a limited glimpse into the challenges you may face in the future, which is itself difficult to predict: the emergence of a new competitor, an unforeseen crisis, a significant change in the environment, etc. By sticking to a traditional planning method, you risk lacking the flexibility to respond to these kinds of challenges. In 2020, many companies were shaken by the health crisis. Others had already implemented a scenario planning strategy developed at the beginning of the fiscal year and were able to adapt somewhat more easily. But what exactly does this entail?
Scenario planning is a method that has long been used in sectors such as agriculture and the military industry. It consists of formulating hypotheses about what the future of the company will be over a given period, based on the evolution of its environment and its various changes.
After defining the time horizon of its analysis, the company must identify the main societal, economic, political, and technological trends that could impact it. Based on these trends, it must then define the main uncertainties—that is, the events whose impact, while still uncertain, is likely to significantly affect its competitiveness. These uncertainties are then explored through various themes and several alternative scenarios that must be coherent and, above all, plausible. The goal is not to engage in science fiction, but rather to take into account both risks and opportunities!
It is in times of crisis that the treasurer most needs to know the state of their cash flow and its availability in order to react very quickly. Since the future cannot be predicted, it is necessary to consider it by creating several scenarios, from the most pessimistic to the most optimistic, in order to encompass all possible outcomes. Then, month after month, the scenario that best reflects reality will emerge; it will then simply be a matter of following it or using it as a reference to adapt it and create new scenarios based on this new information.
It's unrealistic to expect to create and maintain different scenarios in Excel. To easily develop and model your scenarios in order to simulate the financial impacts of strategic decisions and their consequences on your cash flow, there's only one solution: automate your cash flow forecasts.
With NEOFI, say goodbye to multiple spreadsheets and time spent on manual revisions: create, simulate, refine and modify your scenarios with ease via an intuitive and easy-to-configure platform.
NEOFI directly integrates your data into its database to adapt your scenarios as unforeseen events occur. You can also save your simulations to modify them later.
Finally, the tool is collaborative, which simplifies communication with your managers and facilitates the transmission of information within the different teams.
To learn more, visit the page dedicated to our cash flow forecasting solution!
