New Zealand
Cash Flow Forecasting

Cash Flow Forecasting 

No matter how you determine what success means to you, the generation of cash from your business is a key factor in achieving that success. At KPMG we are passionate and skilled at helping privately-owned companies manage cash flow issues to underpin sustainable growth, whether that be from ongoing operations and/or due to acquisitions or mergers. 

 

 

It is not unusual to be profitable yet have no cash in the bank. Effective cash flow management can be the difference between achieving and exceeding growth goals or failure as a business. It doesn’t have to be that way.

 

While many businesses place a significant focus on margins, pricing and resourcing, it is easy to under-estimate the cash flow implications of your businesses strategy. Take in this example below a business that expects to make $310,000 in sales over a five month period. Although profitable, it is not until the final month there is money in the bank.

 

 

 

This simple illustration shows how important it is that business owners are able to calculate how much cash they require to achieve their business objectives. When you add in other considerations such as variable exchange and interest rates, vigorous competition and uncertain market conditions, the impact of a business acquisition and extraction of synergies and the need for capital investment, it is no wonder that many business owners find themselves awake at night wondering how they will pay the bills.

 

"KPMG provides my business with an invaluable pool of resources, knowledge and guidance. Whether it relates to the day to day running of the company, its strategic direction or prioritising opportunities that arise, they have a specialist to assist us every time. I love how user friendly, professional and thorough they are and also that are ready to be blunt about actions they recommend, if needed.

 

We are a small company of 18 full time staff and yet we feel important to KPMG. They really engage with the business and bring useful sector knowledge and vital skills to bear on achieving our goals. If you are concerned about value for money – don’t be. I highly recommend KPMG and often do."

 
Sue Fleischl - owner, The Great Catering Company

 

Cash flow forecasting benefits

Building a cash flow forecast allows an evaluation of what cash resources are required and when they are required by. By looking into the future, business owners can identify any future gaps in funding and plan for those gaps accordingly.

 

Additionally, cash flow models enable you to run various “what if” type scenarios on key variables to see how vulnerable the business is to price changes, staffing levels, exchange or interest rate movements, or any other key drivers.

 

In larger businesses the cash flow projection can be integrated with day to day operations.  This can help with identifying what production is necessary, what resourcing is required and providing an assessment of the capacity within a business.

 

Whether you are forecasting for organic growth from ongoing operations or to review how a potential business acquisition, merger or asset purchase will affect your cash flow, the key components to consider include:

 

  • sales (number of customers, geographic locations, terms of trade)
  • pricing (sales mix, quantities, seasonal pricing)
  • cost of sales (raw materials, capacity required, lead times, variable portion of costs, terms of trade)
  • expenses (wage increases, leases for renewal, variable portion of expenses, servicing sales)
  • assets (expected asset purchases/disposals, link to required capacity)
  • liabilities (loan repayments, interest rate fluctuations).

 

Within each of these components you also must evaluate:

 

  • whether seasonal fluctuations have been allowed for
  • the effect of changing key drivers
  • what safety margin exists.


The preparation of a cash flow forecast should not merely be a fixed annual process. Every business should re-forecast every ninety days to allow for changing business conditions.

 

Building an accurate forecasting model involves understanding how key drivers affect the cash requirements of your business. Other key aspects include incorporating how cash will be monitored as part of your monthly reporting pack.

 

The benefits of improved cash flow forecasting in your business can be dramatic.  At KPMG we have the track record and ability to help you establish effective cash flow management and forecasting practices.  Contact us now to request an interview or phone us for assistance.