Which receipts can the forecast rely on?
A cash view can contain payments already received, invoices due, expected orders and proposed financing. Those entries have different support. Begin by identifying the record or assumption behind each material receipt.
An invoice due date does not establish when the customer will pay. A forecast may need to consider the customer's payment history, an outstanding query or the point at which an invoice can be issued. Use an appropriate source for the assessment and identify where the date remains an estimate.
Proposed actions need their own treatment. A discussion with a lender or a plan to sell an asset is not the same as available funding. The board needs to see what must happen before the receipt can enter the cash position.
When do the obligations fall due?
Set the expected receipts against the dates of payroll, taxes, debt payments, rent and other commitments relevant to the business. The review should distinguish an obligation already due from a future payment management is considering.
For example, an illustrative forecast may place a customer receipt after a payroll date. A positive balance at the end of the month would not resolve the earlier gap. The question is which cash is available at the point the payment must be made.
Where management proposes to change a payment date, identify whose agreement that change requires. Counsel and the appropriate specialists assess contractual, statutory and other professional questions. Commercial analysis should not assume that an obligation can simply be moved.
Show the effect of a changed assumption
A useful review tests the receipt or payment that could alter the next funding decision. The change might concern the date of a customer payment, an operating expense or the availability of a facility. Its effect should be visible in the periods where cash is needed.
Keep the original assumption available. If a revised view silently replaces it, the board loses the explanation for why the funding requirement changed. The analysis can record which source changed and whether the revision is confirmed or remains a management estimate.
Leave time for the required decision
Funding choices have their own preparation and approval requirements. Compare the point at which cash is needed with the time needed to evaluate the option, obtain advice and secure the relevant response. A forecast that identifies a gap only when it arrives leaves fewer practical choices.
Grafton's liquidity and restructuring-options work can prepare this commercial view and compare the options under discussion.
For an illustrative timing problem, consider cash needed before a lender's expected decision date. The options paper needs to show what could meet the requirement during the intervening period and which party would have to agree.
Related commercial notes
Contact Grafton about the company and proposal under consideration.