Cash flow and liquidity planning (2)

SAP Analytics Cloud Forecasting
| Blog 2 | 3 minutes read |

The way forward in times of uncertainty!

In our previous blog we have told you about the necessity of cash flow and liquidity planning in times of economic fluctuations and the different types of planning used in determining liquidity positions. In this blog we will further dive into this topic by showing you how cash and liquidity planning can be realized.  

Some companies have relatively predictable cash flows so they can forecast easily for a whole year or even further. Other companies have complex legal and managerial structures with a lot of different operating and holding companies and millions of in- and outgoing cash flows on a daily basis. For those companies it is already a challenge just to have the correct data available. If you add the different local transaction systems and exceldriven sources of information, realizing an accurate cash flow forecast or liquidity plan becomes challenging and time-consuming. 

Times of economic fluctuations ask for quick analysis and action-takingModern Corporate Performance Management (CPM) solutions in modern and integrated tooling like SAP Analytics Cloud (SAC) and OneStream XF support your business in timely decision-makingOur solutions are developed to help organizations with the automation of manual processes and by capturing data in one database (‘one-version-of-the-truth’).  

In this blog, we will describe our solution developed for SAP Analytics Cloud (SAC). 

Solution in SAP Analytics Cloud

To realize an accurate, reliable and agile liquidity plan we have combined the steps of liquidity planning as explained in our previous blog. The liquidity plan and cash flow planning have been integrated into one clear workflow. The core of our solution is to combine existing data, like the realized profit and loss and balance sheet and our predefined automatic calculations, called data actions. These data actions will calculate the impact of your adjustments on the resulting cash flow and liquidity positions.  

Cash flow forecast

We start with the cash flow forecast. The first step is to specify the planned investments for the coming period. Once entered, SAC automatically calculates the effects on our cash position by determining the depreciation and cash outflows.  

After planning your CAPEX projects, it’s time to plan expected profit and loss. We can use SAC to take your current P&L and create a scenario for the nearby future. The next step in our solution is to correct for intercompany receivables and payables. After adjusting these positions, the other P&L items can be adjusted for future developments. This can be done manually, for example using the top down input possibility of SAC, or by using one of SAC’s advanced planning functionalities like spreading or automatic allocations. More features in SAC are described in our Budgeting & Forecasting whitepaper. 

After the P&L is planned, a data action calculatethe operational cash flow. This can be checked directly in visualizations provided in the same story. As a last step, when the results are satisfactory, we book the cashflow to the balance sheet to create the positions for cash and cash equivalents. These will be used for the next step in our process, which is the liquidity plan. 

Liquidity planning

Once the regular cash flow for the nearby future is calculated, it is time to determine the liquidity positions. The input from the cash flow process can directly be used to make corrections for the effect on liquidity. In this part of the solution, liquidity can be tested by adjusting the cash flow from operational activities by applying a sensitivity matrix, using both volume and margin effects. Another adjustment that can be made to increase liquidity is to review debit and credit terms. The impact of these corrections can be calculated companywide by the push of a button. 

The next step in the solution in SAC is to adjust the execution and credit terms for the investments planned in the cash flow forecast. These investments are retrieved from the previous steps, after which the effects of different credit terms or timelines can be reviewed.  

The last step is to review the scenario created in the process. The liquidity positions are clearly visualized including cash surplus and eventual shortages. Visualizations are provided to compare the effects of the adjustments to your scenario. By using SAC, the data and enhanced visualizations can easily be updated and shared with stakeholders. By collaborating in one platform, time can be used efficiently, focusing on taking the right and timely decisions. 

Business benefits

CPMview’s integrated cash flow and liquidity planning in SAC offers integrated planning, based on your realized figures and readily available data. In a concise and structured workflow, future cash flows can be easily forecasted. By adjusting drivers and using automatic calculations, effects of changes can be determined quickly and reliably for several scenarios. These adjustments can be shared and analyzed in the same tool, providing direct insight for all stakeholders where action is required to cover the cash outflows.   

This solution supports companies by decreasing cost, by limiting throughput time for data collection, reconciling and validation. Liquidity and cash flow plans can be realized fast, saving time for more value-added activities. 

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