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O P I N I O N
A s we get closer to the end of 2015, your firm is probably almost ready to project firm performance, review the year-end, insure that taxes are covered, and hopefully, if your firm has had a great year, determine the year-end bonus for staff. Cash flow, year-end, and predictability Revenue forecasts, backlog reports, and historical information are among the essential components your firm needs to create a predictable cash flow model.
Revenue forecasting. With accurate resource plan- ning, accurate revenue forecasts are a natural result of the work effort to plan the projects and forecast revenue. In the absence of reliable data, revenue forecasting is a function of the project manager’s and the financial team’s review of the projects. The generation of in- voices and the payment by the client within contract terms are critical components to cash flow forecasts. “This predictive look, if applied with rigor, would allow for year-end cash planning and decisions to be addressed as an ongoing exercise. The dynamic elements involved with running a professional service practice demands a continuous review of the cash flow model. Why wait until the last quarter of the year when you can know the flow routinely during the year?”
In most cases, this is a less than predictable event. Many of the firms that we consult with have turned to us to assist in making their cash flow reviews more predictable, and less of a challenge to review where the firm is headed. Is your firm still relying on the daily cash inflow report? Many firms’ senior leadership depends on the daily report in lieu of a predictable cash flow modeling. They will claim that this daily report gives them a gut feel of where the cash position of the firm is. When they review daily cash reporting, it can be compared to riding a bicycle on a highway – with your head down, you only see what is ahead of your tire. You don’t know that a semi has stopped in front of you, and then you’re splat on the back of the rig. Predictive cash flow allows you to ride the same bicycle down the road, and with a 12-week view of the firm’s cash position, you can see clearly ahead and can compensate for unforeseen roadblocks. A predictable cash flow model relies on a number of factors to forecast accurate and predictable inflows of cash. The following are critical elements of that predictable look:
See TED MAZIEJKA, page 10
THE ZWEIG LETTER JANUARY 4, 2016, ISSUE 1133
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