Cash is king — or

queen
Why and how to conduct effective
cash flow forecasting now
May 18, 2020
Disclaimer

► The views expressed by the presenters are not necessarily those of Ernst & Young LLP or
other members of the global EY organization.

► These slides are for educational purposes only and are not intended to be relied upon as
accounting, tax or other professional advice. Please refer to your advisors for specific
advice.

Page 2
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Today’s
moderatorKath Carter
Partner, Global Transaction Advisory Services,
Markets Accounts and Business Development Leader and
EY Entrepreneurial Winning Women™ Global Executive Sponsor

Page 4
Today’s
speakers Briana Richards
Principal, Americas
Transaction Advisory Services,
Liquidity and Restructuring,
Ernst & Young LLP
Nick Bugden
Senior Manager, Americas
Transaction Advisory Services,
Liquidity and Restructuring,
Ernst & Young LLP

Page 5
Current situation

• Reduced demand and output

• Economic uncertainty
• Depleted cash reserves
• Scenario analysis and cost saving measures
• Liquidity conservation to survive the now
• Planning for the next and beyond

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What is a cash flow forecast?

• Forecast of available liquidity

• Often cash in bank and revolving loan availability

• Near term, typically 13 weeks

• Sometimes dives into daily cash availability

• Direct cash flow, not GAAP accounting

• Actual timing of customer receipts and supplier
disbursements

• Management tool
• Used in conjunction with other planning tools

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What is a cash flow forecast?

• Typically built in a spreadsheet

• 14 columns for 13 weeks + total
• Number of rows varies by company and need
• Rolling cash balances

Week 1 2 3 4 5 6 7 8 9 10 11 12 13
5/15 5/22 5/29 6/5 6/12 6/19 6/26 7/3 7/10 7/17 7/24 7/31 8/7 Total

Receipts 3 3 3 3 3 3 3 3 3 3 3 3 3 39 A
Disbursements
Payroll (2) 0 (2) 0 (2) 0 (2) 0 (2) 0 (2) 0 (2) (14)
Suppliers (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (1) (13)
Rent 0 0 0 (3) 0 0 0 (3) 0 0 0 0 (3) (9)
Debt service 0 0 0 0 0 0 0 (6) 0 0 0 0 0 (6)
Capex 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Total disbursements (3) (1) (3) (4) (3) (1) (3) (10) (3) (1) (3) (1) (6) (42) B
Net cash flows 0 2 0 (1) 0 2 0 (7) 0 2 0 2 (3) (3) A+B=C

Beginning cash 10 10 12 12 11 11 13 13 6 6 8 8 10 10 D
Net cash flows 0 2 0 (1) 0 2 0 (7) 0 2 0 2 (3) (3) C
Ending cash 10 12 12 11 11 13 13 6 6 8 8 10 7 7 D+C

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Cash flow forecasts are unique to each company

► Certain forecasts will be more complex (i.e., incorporate asset-based

lending (ABL) facility).
► Companies may need multiple forecasts for distinct business units.
► Line items and structure can flex, as needed.
Week Ending
Forecast Week-> 1 2 3 4 5 6 7 8 9 10 11 12 13
($ in thousands) 11/9/2018 11/16/2018 11/23/2018 11/30/2018 12/7 /2018 12/14/2018 12/21/2018 12/28/2018 1/4/2019 1/11/2019 1/18/2019 1/25/2019 2/1/2019 13 Weeks

Beginning Cash Balance $ 14,002 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 14,002

Receipts
Operating Receipts $ 56,908 $ 73,301 $ 50,424 $ 56,512 $ 28,848 $ 33,588 $ 49,872 $ 26,163 $ 24,684 $ 28,871 $ 48,825 $ 36,918 $ 33,392 $ 548,306
Non-operating Receipts 20 350 20 20 20 20 1,000 20 20 20 20 20 20 1,570
Total Receipts $ 56,928 $ 73,651 $ 50,444 $ 56,532 $ 28,868 $ 33,608 $ 50,872 $ 26,183 $ 24,704 $ 28,891 $ 48,845 $ 36,938 $ 33,412 $ 549,876

Disbursements
Trade $ (51,235) $ (66,286) $ (45,399) $ (50,878) $ (25,982) $ (30,247) $ (45,785) $ (23,565) $ (22,234) $ (26,002) $ (43,961) $ (33,244) $ (30,071) $ (494,888)
Payroll (78) (44) (296) (3,041) (666) (328) (856) (2,699) (121) (174) (281) (272) (2,254) (11,109)
Barges / Charter - (1,258) (112) (751) (831) (473) (109) (495) (696) (183) (397) (13) (909) (6,227)
Storage - (216) (476) - - (148) (549) - - - - (154) (772) (2,315)
Other OPEX (46) (702) (685) (2,150) (1,759) (645) (1,252) (743) (794) (856) (654) (1,339) (2,284) (13,908)
Interest - (39) - (144) (51) (92) (114) (75) (560) (153) (429) (2) (513) (2,171)
Taxes - - - (247) - - - (630) - - - (230) - (1,107)
Capex - (122) - - (252) - (40) - - - (263) - (81) (757)
Total Disbursements $ (51,359) $ (68,666) $ (46,967) $ (57,211) $ (29,541) $ (31,932) $ (48,705) $ (28,206) $ (24,405) $ (27,368) $ (45,985) $ (35,255) $ (36,883) $ (532,483)

Net Cash Flow $ 5,569 $ 4,984 $ 3,476 $ (679) $ (672) $ 1,676 $ 2,167 $ (2,023) $ 299 $ 1,523 $ 2,860 $ 1,684 $ (3,471) $ 17,393

Cash before financing $ 19,571 $ 14,984 $ 13,476 $ 9,321 $ 9,328 $ 11,676 $ 12,167 $ 7,977 $ 10,299 $ 11,523 $ 12,860 $ 11,684 $ 6,529 $ 151,395

Borrowings $ - $ - $ - $ 679 $ 672 $ - $ - $ 2,023 $ - $ - $ - $ - $ 3,471 $ 6,845

Repayments (9,571) (4,984) (3,476) - - (1,676) (2,167) - (299) (1,523) (2,860) (1,684) - (28,240)
Change in ABL (9,571) (4,984) (3,476) 679 672 (1,676) (2,167) 2,023 (299) (1,523) (2,860) (1,684) 3,471 (21,395)

Cash Flow incl. Financing $ (4,002) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (4,002)

Ending Cash Balance $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Restricted cash - - - - - - - - - - - - - -

Available cash $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

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18 May
Presentation
Page 102020title
Poll question 1

What level of cash flow

A None
forecasting do you currently
do? B Review of major funding needs in
the next couple weeks
Text
Weeklycash flow forecast for the
[Select one] C Text
next several months
Text
D Monthly forecast based on
project financial statements

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Why cash, and why 13 weeks?

• Cash is the lifeline of the business.

• Pay employees
• Purchase goods or services
• Pay other creditors (e.g., banks)
• Pay owners or other investors
• Predict ability to generate sufficient cash
to fund operations.
• The 13-week timeline allows for proactive
action to address or mitigate liquidity
issues.
• Note that one quarter captures most types of
expenses

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When to develop a forecast

• Declining cash balances

• Times of uncertainty
• Potential financial strain or distress

• During transaction or reorganization

• Near-term forecasting can optimize cash uses

• Required reporting to lenders

• Often resulting from covenant breaches or
unforeseen drawdown requests

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Who is involved in the process?

• A thorough cash flow forecast will consider

all aspects of the business:
• Management/strategy
• Finance and accounting
• Sales team
• Operations
• Human resources

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How to forecast cash flows

Review
Prepare
methodology
weekly
and
forecast
assumptions

Perform Record and

variance reconcile
analysis actuals

• Iterative process that improves every week

• Imperative to track actual cash flows
• Can be as broad or detailed as is necessary

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 Getting started
Review Forecast

Variance Actuals

• Before jumping into the weekly cash flow

forecasting cycle, know the data and what
level of detail is feasible
• Identify operating bank accounts and other
liquidity
• Establish data sources for cash actuals
• Create a cash flow template with viable lines —
receipts and disbursements
• Populate actuals for a reasonable historical period
• Review the latest balance sheet and budget

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 Initial weekly forecast
Review Forecast

Variance Actuals

• What has happened

• Unwinding balance sheet accounts
• Accounts receivable: collections due from prior sales
• Accounts payable: payment of actual expenses based
on terms
• Already incurred; timing may be controllable

• What will happen

• Underlying regular payments
• Payroll, rent, debt
• Generally fixed costs with very little flexibility

• What might happen

• Future activity that will convert into cash
• Future sales and vendor purchases
• Asset sales and capital expenditures
• Most controllable portion of the cash flows

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 Building blocks of a cash flow forecast

Opening bank position Unwind of opening balance sheet Receipts and payments arising from forecast
per bank statements trade debtors and creditors sales and purchases
Week Ending
Forecast Week-> 1 2 3 4 5 6 7 8 9 10 11 12 13
($ in thousands) 11/9/2018 11/16/2018 11/23/2018 11/30/2018 12/7 /2018 12/14/2018 12/21/2018 12/28/2018 1/4/2019 1/11/2019 1/18/2019 1/25/2019 2/1/2019 13 Weeks

Beginning Cash Balance $ 14,002 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 14,002

Receipts
Operating Receipts $ 56,908 $ 73,301 $ 50,424 $ 56,512 $ 28,848 $ 33,588 $ 49,872 $ 26,163 $ 24,684 $ 28,871 $ 48,825 $ 36,918 $ 33,392 $ 548,306
Non-operating Receipts 20 350 20 20 20 20 1,000 20 20 20 20 20 20 1,570
Total Receipts $ 56,928 $ 73,651 $ 50,444 $ 56,532 $ 28,868 $ 33,608 $ 50,872 $ 26,183 $ 24,704 $ 28,891 $ 48,845 $ 36,938 $ 33,412 $ 549,876

Disbursements
Trade $ (51,235) $ (66,286) $ (45,399) $ (50,878) $ (25,982) $ (30,247) $ (45,785) $ (23,565) $ (22,234) $ (26,002) $ (43,961) $ (33,244) $ (30,071) $ (494,888)
Payroll (78) (44) (296) (3,041) (666) (328) (856) (2,699) (121) (174) (281) (272) (2,254) (11,109)
Barges / Charter - (1,258) (112) (751) (831) (473) (109) (495) (696) (183) (397) (13) (909) (6,227)
Storage - (216) (476) - - (148) (549) - - - - (154) (772) (2,315)
Other OPEX (46) (702) (685) (2,150) (1,759) (645) (1,252) (743) (794) (856) (654) (1,339) (2,284) (13,908)
Interest - (39) - (144) (51) (92) (114) (75) (560) (153) (429) (2) (513) (2,171)
Taxes - - - (247) - - - (630) - - - (230) - (1,107)
Capex - (122) - - (252) - (40) - - - (263) - (81) (757)
Total Disbursements $ (51,359) $ (68,666) $ (46,967) $ (57,211) $ (29,541) $ (31,932) $ (48,705) $ (28,206) $ (24,405) $ (27,368) $ (45,985) $ (35,255) $ (36,883) $ (532,483)

Net Cash Flow $ 5,569 $ 4,984 $ 3,476 $ (679) $ (672) $ 1,676 $ 2,167 $ (2,023) $ 299 $ 1,523 $ 2,860 $ 1,684 $ (3,471) $ 17,393

Cash before financing $ 19,571 $ 14,984 $ 13,476 $ 9,321 $ 9,328 $ 11,676 $ 12,167 $ 7,977 $ 10,299 $ 11,523 $ 12,860 $ 11,684 $ 6,529 $ 151,395

Borrowings $ - $ - $ - $ 679 $ 672 $ - $ - $ 2,023 $ - $ - $ - $ - $ 3,471 $ 6,845

Repayments (9,571) (4,984) (3,476) - - (1,676) (2,167) - (299) (1,523) (2,860) (1,684) - (28,240)
Change in ABL (9,571) (4,984) (3,476) 679 672 (1,676) (2,167) 2,023 (299) (1,523) (2,860) (1,684) 3,471 (21,395)

Cash Flow incl. Financing $ (4,002) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ (4,002)

Ending Cash Balance $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

Restricted cash - - - - - - - - - - - - - -

Available cash $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000

One-off irregular payments,

Underlying operating Revolver/
e.g., capex, loan repayments,
payments, e.g., rent, payroll financing activity
redundancy costs

Page 17
 Example sources
Review Forecast

Variance Actuals

• Balance sheet — current assets and

liabilities
• Payroll calendar
• Annual budget
• Debt amortization schedules
• Discussion among management, including
operations
• Other sources/considerations
• Recent run rates
• Sales team projections
• Inventory forecasts
• Capital expenditure budget
• Contingency allowance for the unknown

Page 18
18 May
Presentation
Page 192020title
Poll question 2

What is the impact of COVID-19 A Severe

Text
on your 2020 revenues?
B Major
[Select one]
C Minor
Text
Text

D Zero
Text or positive

Page 19
 Record and reconcile
actuals Review Forecast

Variance Actuals

• Collect cash flow source data

• Bank statements
• Payroll reports
• Check runs
• Collect data on latest balances
• Accounts receivable/accounts payable
• Checks outstanding
• Organize into cash flow lines
• Check: beginning cash + activity = ending cash

Page 20
 Perform variance analysis
Review Forecast

Variance Actuals

• Align prior week forecast and actuals

• Calculate the variance
• Identify timing and permanent variances

Week 11
20-Feb through 24-Feb Variance
Forecast (1) Actual $ % Comments

Operating cash flows

Receipts
Operating receipts $ 6,897 $ 6,832 $ (65) -1%
Miscellaneous receipts - - - 0%
Total receipts 6,897 6,832 (65) -1%

Operating Disbursements
Payroll & Benefits (2,540) (1,977) 562 22% Bonus check timing
Raw materials (7,146) (4,680) 2,465 34% Select vendors providing limited terms
Freight out (523) (628) (105) -20%
Supplies / Repairs / Dies (698) (425) 272 39%
Utilities (791) (270) 522 66% Timing
Insurance - - - 0%
Taxes (379) (171) 208 55%
G&A / rent / cards (69) (35) 35 50%
Commission (5) - 5 100%
Contract / Professional services (60) (108) (48) -79%
Other disbursements (179) (26) 153 85%
Total operating disbursements (12,391) (8,321) 4,070 33%

Net operating cash flows (5,494) (1,489) 4,005 73%

Restructuring costs
Professional fees (100) (67) 33 33% Delay in receipt of professionals invoices
US Trustee fees - - - 0%
Adequate assurance - Utilities - - - 0%
Other restructuring costs - - - 0%
Page 21 Total Restructuring costs (100) (67) 33 33%
 Review and roll forward
Review Forecast

Variance Actuals

• Review drivers of prior week variances

• Refine methodologies and assumptions
• What is the appropriate detail level?
• Were all categories of spend captured?

• Roll forward the forecast, always looking at

the next 13 weeks

• Determine whether proactive actions are

required to maintain adequate cash
availability

Page 22
 Insights/actions

• Scenario analysis
• Model impact of external economic drivers
• Sensitize various options and outcomes

• Cash conservation
• Defer capital projects
• Stretch payables
• Personnel actions (i.e., limited overtime, furloughs,
reductions in force)

• Capital conversations
• Raising funds (debt/equity)
• Covenant waivers

Page 23
18 May
Presentation
Page 242020title
Poll question 3

What actions are you taking to

A Delaying payments to vendors
Text
extend your liquidity position?
B Offering discounts
[Select one]
C Minimizing purchases
Text
Text
D Furloughing employees
Text

E
Borrowing funds/raising additional
capital

F All of the above

Page 24
Potential levers to enhance liquidity

• Impact and risk will vary by sector and individual organization.

Focus here first … … and consider prepping for this

Short
term
• Stretch accounts payable
• Employee furlough
• Temporarily idle
operations
• Consider wage and bonus
deferment/cut
• Delay capital
expenditures
• Defer marketing spend
and related programs
• Draw on remaining
credit lines
• Offer temporary
discounts to promote
sales
• Eliminate/reduce 401(k)
match
• Reduction in force
• Reduce inventory
purchases
• Review AR and
accelerate collections
• Expand ABL availability
• Tighten discretionary
spending limits/approvals
• Implement hiring freeze
• Factor accounts
receivable
• Eliminate/reduce dividend
(if relevant)
• Tax stimulus/incentives
(as available)
• Manufacturing/ops
transformation
• Repatriate cash sitting in
overseas bank accounts
Long
term
• Reduce SG&A costs
• Raise new capital
• Sale or monetization of
non-core assets (i.e., sale
and leaseback)
• Footprint and SKU
rationalization
• Liquidate aged inventory
(if relevant)
• Procurement optimization
• Outsource/offshore
admin back office
• Conduct zero-based
budgeting exercise

• Reduce customer credit lines • Evaluate potential insurance claims

• Apply vendor/supplier credits
• Offer early payment discounts

Business risk: Low Medium High

Page 25
For more
information,
please visit:
Scenario planning webcast replay

COVID-19 resources

Thought Center
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