In order to anchor the forecast view to the current business environment, as with most cash forecasting time-horizons, classified actuals are usually included.
Additionally, many insurance companies require a longer-extending view because their particular planning purposes. However, certain businesses may extend beyond this, for example if they have a multi-year project to oversee. Typically, a monthly cashflow forecast extends six to twelve months into the future. These line items are usually captured at a relatively high level of detail, rather then getting down into the granularity of customers’ or suppliers’ details as you might expect to see on a shorter-term forecast. The forecast itself is composed of top-level line items such as receipts, payments, intercompany flows, investing levels, and capital expenditure. For example, the forecast view might show weeks in the short term, and then switch to a monthly forecast horizon after 13 weeks. However, it is also not unusual to have a hybrid forecast layout which works in combination with an additional time horizon. What does a monthly cash forecast look like?Īs you would reasonably expect, the units of time included in a monthly cash forecast are months. This can be an area of particular focus if management are seeking guidance on acquisitions activities or aid with the timings of any other significant capital expenditures.ĭepending on the circumstances of a company’s debt arrangements, covenant forecasting requirements can also be a catalyst to the setting up of a monthly cash forecasting process. This is often the case if senior management have asked to be guided on anticipated cash positions at year-end, half-year, or quarter-end. In some cases, there may be a desire for greater granularity than the annual budgeting processes can afford, but without getting down to the level of day-to-day or week-to-week cash management. The drive to set up a monthly cash forecasting process can come from a range of sources. For example, senior management may require a monthly pack which includes a month-end cash forecast so that they can take a view on the health of the company’s liquidity reserves heading into the future. The business objectives of a monthly cash flow forecast are often management reporting focused.
Unlike a daily or weekly forecasting process, a monthly cash forecast is not focused on the day-to-day management of cash and liquidity but on the longer term. The key use of a monthly cash forecast is longer-term planning for strategic and tactical purposes. Why companies set up a monthly cash flow forecast
MINIMUM CASH BALANCE FORECASTING SERIES
In the third part of our series discussing how different time horizons are used in cash forecasting we explore all the elements of the monthly cash flow forecast.
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