5 Tips for Managing Your Cash Forecast in 20 Minutes

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Overcome the 5 Primary Challenges of Cash Management and learn how you can improve your company’s cash management & positioning in just 20 minutes.

Managing your company’s cash operations can be challenging, especially in today’s fast-paced business environment, but it doesn’t have to be. These 5 simple tips will help you overcome the manual monotony of Excel and utilize Open Banking innovations to securely and accurately manage your cash position. Why spend your time manually building reports and forecasts when you could be focusing your valuable time on making strategic decisions that will grow your business?

Join Scott Harrington, Chief Finance Officer at Trovata, for this snackable education session on finance management.

I’d like to introduce our speaker. We’re joined by Scott Harrington, CFO at Trovata. Scott has more than 20 years of finance and accounting experience in both public and private companies, and within the past five years has helped finance leadership roles at the fastest growing startup unicorns and tech. He’s now excited to be leading the finance charge that Trovata, especially as the platform’s innovations solve many of the cash forecasting challenges facing his prior roles. With that said, I’ll turn things over to you, Scott, to discuss those challenges and your tips for overcoming them.

Welcome and thank you and thanks for joining us today. So we’re gonna dive into five tips for managing your cash forecast. As you all know, we could spend days and days diving into cash forecasting, cash modeling and even cash management in general. But today we’re just gonna share five tips to help you better manage your forecast. Before we dive into those, I’ll quickly touch on why cash matters. And then we’ll touch on some information you need to prepare your cash forecast, your cash forecasting model. 

Why cash forecasting matters. First and foremost, especially as a CFO is you want to ensure your business is adequately capitalized, you never want to run out of cash. And this may sound simple. But running out of cash is continually one of the top reasons startups fail early on. Maybe you’re an early stage company investing in product development and you’re managing cash burn, your cash runway or maybe you’re a later stage company, you know, you have a product generating profitable revenues, even a path to cash break even, but you just need to invest in maybe like go to market motion, your sales and marketing, or maybe even global expansion is on your radar. And in both these cases, cash forecasting definitely provides you with the visibility and understanding to manage your cash runway. And most importantly for capitalization, it helps you to be proactive with securing your debt or equity facilities and financing, or even selecting the right type of financing to meet your business’s cash flow needs. 

The second point to hit on this topic is really around the peaks and valleys of your business. At the end of the day, cash matters. Cash is one of the most important assets on your balance sheet that provides a business with general flexibility. There’s both in entertaining business opportunity or just simply meeting, you know, your recurring fixed obligations in the business. Cash forecasting again provides you with a better understanding of thinking of cash shortages, cash surplus, just a better understanding of your seasonality and managing all those working capital needs. Again, I touched on it, this is things like meeting your fixed or recurring obligations, like you may have a debt facility and big monthly debt payments. Also, especially in the SaaS world, people costs are an important, really recurring expense on the business and you want to ensure you’re meeting those payroll obligations every month or every two weeks. On the contrary, maybe you’re managing cash plus. So having a tight cash forecast helps you better manage your investment portfolio decisions and might let money do the work for you. And then in the end too, having a cash forecast helps you just better understand and support growth in the business. Maybe understanding that runway your investment opportunities as well, again at a time or maybe you can lean in and investigate your go to market motion and take advantage of the opportunity and seize the opportunistic moments. 

The last item I want to hit on is why cash forecasting matters is really avoiding surprises. You want to be able to avoid surprises and be able to plan for the unexpected. It’s easy to say. But, as we all know and especially 2020 taught us that things can go not as planned and sometimes in a very real and hard way. By having a dynamic cash forecast, something with scenario planning, what if scenarios, can really help you move quickly in response to shifts in the business. Again, be it external factors, internal factors that really help you pivot quickly. Also better manage your risk, understand and communicate maybe the possible trade offs in some of those scenario planning scenarios. And also again back to the communication a little bit is those what if scenarios help really set the tone and drive expectations. Again both you and maybe your leadership, you know, or even your bankers.

Next, how to pull it all together to really understand and put together a cash model or cash forecast. You really have to look at your landscape, things you need are clearly all of your Bank accounts, visibility, all your cash and investment activity, all of your cash and Bank transactions. We need to have knowledge of all of your systems, whether it’s your ERP system, clearly your banking portal site, is it one or are you multi Bank? And then there’s even maybe other sub ledgers or systems that you need access to and visibility to. Some of that really just has to do with understanding and identifying which sources have the best level of information and useful information for you to manage your cash forecasting, build it off of and also analyze actuals versus forecast. One other piece to mention is really being aware of all of your payment vehicles. This overlaps sometimes with what information and sources you need to have visibility to that transactional activity through those payment vehicles and then also payment vehicles can drive timing in your cash flow, whether it’s manual checks or on your ACH or whether you utilize virtual cards and credit cards. 

Then the next piece to really understand and put together cash flow, especially if you’re dealing with multiple information, multiple sources is really compiling it all together and understanding your cut offs. Maybe there’s timing differences between your various sources. Maybe there’s redundancies in information. And again, like I noted earlier, maybe some sources have really good key information and you need to bridge that and compare it to other sources to get tightness for completeness. 

In the past, I can say personally pulling together all this information was really time consuming as many of you know with building cash flow models or cash forecasts. It definitely isn’t done without excel. It definitely isn’t done without an art and science to the madness again with many manual inputs and many hours put into again orchestrating, compiling all this various information and then compiling all together again for completeness and accuracy.

So now we’ll jump into our tips. The first tip that has really helped me in the past both with a right sizing a balance sheet and both with my recent rules with growth stage companies is really developing, owning, and driving a 13 week forecasting model. A really big benefit with driving a 13 week forecast model is it will help you provide a deeper understanding of just truly your real time cash inflow and outflow activities being so close to the recurring visibility week in and week out. You can truly better understand the linearity of your activity and that helps you even optimize your processes and policies. This comes all the way to your customer terms, your vendor terms and payment methods. As I noted earlier, with your payment vehicles, when you’re really honing in your weekly cash outlook, it really helps you better understand all the timing of those processes and policies. Weekly cash forecasts can also provide another key benefit which is a cadence for identifying issues. Timeliness, we’re in a time of digitalization where we’re used to real time feedback. So having a weekly cash forecast is one way to provide great timing information to stay ahead and identify issues early, definitely before a month end or even a quarter end or a period. And so you could communicate with the stakeholders. So you can actually have time to course correct and at the end of the day avoid surprises. And then last but not least 13 cash forecasts serve as a strong basis for your monthly and annual forecasting. I’ve used this in the past, getting so immersed in your payment vehicles, you’re truly within the month linearity of cash activity really helps you build and architect a way stronger annual financial plan and annual financial forecasting model, all the way to build that up to in there, you know, a three or five year outlook and just gives you way better visibility into an understanding of your cash flow seasonality. And again, that’s within the model. 

Next tip, one that has worked for me especially in growth stage companies and my recent roles is task yourself with knowing where you are before the end of each reporting period again or it’s such a time of good, useful timely information. A key metric for a lot of companies is every week and week out, how are our bookings doing, how are our new logos coming in, how’s our hiring tracking? Well, there’s no reason why you shouldn’t be before every period end on top of how your cash flows looking, how was your cash burn trending? How was your cash influx coming and at the end of the day, stay ahead of how you’re going to end that period with your cash position. 

This is very helpful again with a few things. You may have month end debt covenants that you need to be in compliance that you’re managing to or maybe there’s internal or external reporting, KPI’S and metrics and targets that you’re shooting for. By staying ahead of your period end and communicating, it gives you the opportunity to set expectations again with leadership, with spend activity with your investors. It helps drive trust because there’s no surprises. At the end of the day, if you’re honing in and able to predict and project three days into month end, three days into quarter end or even a week out, how you’re tracking to plan for cash is key to just building that trust and understanding that you know your business. 

Again, as I touched on earlier, a little side trick for me is don’t get caught by surprise, stay ahead of it, communicate it. Forecasting automation is a must. And like I said, what’s worked for me in the past is key measures, key metrics that we’ve managed week in and week out are our top line numbers like bookings, ARR, ACV, average order deal size, new customers, and even headcount, how are we on hiring? Are we behind plan or not? Are we optimizing spend? Are we getting all the talent to build product? Another KPI that I over the last 10 years have been putting on that metric is our cash. Again, there’s no reason really book ends for business when you’re talking about the top line growth, your average deal size and how you’re already tracking the plan and that investment side of the business. So a key metric and a key thing I even communicate out on day zero, I call these zero communication of close. It’s days zero, the last day of the month, you close your last deal, you summarize all of your deals, your bookings and your ARR and you also tell them, give them a very preliminary review on how you’re landing that period for cash. A key metric again to build trust that you know your top line and your bottom line. We’re in a day and age where people love and want and expect predictability, repeatability and scalability of your top line. People have that same expectation with your cash as well too and your cash management. 

To do this sufficiently though is not easy without automation. So these other bullets on this slide really have to do with automation is a must. To have this routine, recurring visibility before month end, three days before month end, at day zero, the tip of month end. Automation really helps ensure the completeness, the consistency and accuracy and even the timeliness of being able to churn and cycle that information to communicate. 

Another thing is also the ability to analyze your trends, your history and how that relates to your actuals again with automation and through machine learning and AI, there’s good possibilities with only improving the accuracy of that information that you’re churning and cycling through those interim periods of the month. 

A third tip I want to share is especially for leadership, investors and your non-financial stakeholders is really don’t just report on the numbers, pull the story, the what and the why happened. Most of you are familiar with a lot of these steps, get real time data, perform variance analysis, then actually craft the story of what happened. Then the next level is really boiling it down to why and what does it mean to the business? So I really want to hit on, spend your time understanding and communicating how changes in the cash activity for any given period really reflect and drive the results and our alignment with the results of the key business objectives for that time. Forecasting isn’t just about looking forward, it’s about where you are today and the why and also what happened relative to plan. The good example is your cash collections, are your cash collections on track? Maybe you landed at your cash balance target at the end of the month but that’s only because you had one significant customer come in, you know, collect on time and that really helped your number. That means you have a voice next quarter with those cash receivables not there to come in and help there. So it’s all a matter of also where you are today in the what and the why relative to plan. 

Another good example, is there a cash outflow? Is your cash outflow as you looked at that period and close that month trending hot? Or is it again really just a timing issue from cash? Maybe it’s that time of year where you pay your annual Salesforce.com subscription or something like that, which is, you know, lumpy if you’re signing contracts on an annual basis, that can sometimes just be a timing issue and not reflective of, you know, really op ex cash burn running hot. 

Another piece on this and communicating is I’m a big fan of general financial statement literacy, understanding your income statement, understanding your balance sheet because a PnL is important to manage, operating expenses are an important thing to manage. But there’s a lot that can get hung up on the balance sheet. That doesn’t tell the complete story of the business health and how it’s doing relative to plan. What I’ve found in the past and especially with communicating with leadership is discussing and communicating the PnL activity. But then coupled with actually the cash activity is a great way to bridge that gap and not have to pull balance sheet analytics into leadership discussions or KPI’S to discuss with again, non-financial executives or other people, in that fashion. It’s really about, you know, communicating how their spend was to the operating plan, which executives are all about, and how did they spend relative to their cash burn and cash. At the end of the day, nobody wants to run through how signing a two year contract is okay on the PnL for now but that’s because it got hung up on the balance sheet and capitalized and it’ll be amortized over a two year period. At the end of the day, they want to know is my op ex on track and the PnL and is my cash spend on track with what you expected for my departmental spend or for our enterprise spend. 

The other piece, the last tip on this slide, which is really where I’ve spent probably half of my career, is really on the left two quadrants, spend a lot of time in excel, spend a lot of time validating data and analyzing data. It’s really just compiling the information and analyzing it and you run out of time to cross the story and really look at cash from a top down point of view, what it really means to the business. So I want to call that out for sure. Don’t get caught spending too much time obtaining and compiling and scrubbing your data. Where you want to be spending your time is communicating the story all the way from the top line and what it means to the business, your cash runway or your ability to meet your growth objectives. 

Jumping to the next tip. This is more of a reminder, tip four is don’t forget the changes in your business and processes all along the way. No matter how you build your cash forecasting model in this day and age of growth, new products, changes in product, SaaS services. You may have a good example of changes in the business you need to stay on top of and ahead of. For example, moving from a subscription billing model to consumption billing model where you’re invoicing customers on a monthly basis, that’s a big game changer with how your cash inflows and outflows react. And in addition to what possible systems you may need to have visibility to an awareness of and drive and pull in your cash flow model. 

The other piece is understanding your procurement cycle, your order to cash cycles. This is a little bit to do again with payment vehicles. You know, maybe you’re able to automate a lot of your recurring spend through V cards to take advantage of, you know, purchasing favorability and credits to really offset the cost of your procurement engine. What you might find is that it accelerates your payments. So that could be a good way to understand a change in procurement processes and better optimize that immediate change. Again using V cards, virtual cards, as an example. What you might jump into there is accelerating cash outflows which you don’t want to do. So you can fine tune your procurement policies, your processes and maybe your internal controls along the way with making sure procurement cash flow back on track and really optimize your vendor terms. And then it comes back to understanding your enterprise systems and tools. With this day and age again making so many changes, you don’t want to miss the gap with the gaps in your information and making sure all your systems are talking and you have completeness of data.

These are all things to consider again building your cash flow model especially in a day and age where all of it is done in excel. Like I talked about earlier with the various sources, various tools and various data and information. 

So really the next thing you might be thinking is that’s a lot. There’s a lot of systems. I know, I have my data, both inflows and outflows and billing and banking data, and multi banks and different banking portals. How do I get on top of this? How do I do it? With my limited resources or timing or staffing, how do I do it with, in such a cadence where I’m able to do this once a week, twice a week or maybe going into our quarter end three times within that week to have tight accurate, you know, days, zero reporting… well, in order to get this done, digitalization is really the key. It’s a matter of automation, ways to automate as much as possible, consolidate to a single source of truth or limited amounts, you know, have source data, limiting the amount of source data that you’re pulling your information from. 

And again, with these things in mind, really I’ll jump to our tip five. And that’s really looking into a possible solution like Trovata that can provide you an easy scalable solution to not only have real time visibility of your cash balances globally, but also real time automation of your cash forecasting and your cash forecasting model. Trovata and I can speak for myself is a system that provides one source of truth and can provide that one source of truth with one log in to have true real time visibility to all of your Bank balances, Bank positions, in addition to real time cash forecasting that you can get in, review, manage, manipulate, stress test scenarios, plan. And the other benefit about it is it has through it’s machine learning and AI, all of your historical transactional data and all of your historical forecasting data. So through that machine learning it also provides you recommendations and it’s like having another person in the trenches with, you, you know, stress testing your financial model. Another thing I’d say about Trovata and it’s been a huge key and benefit to me is the turn key, No IT required solution. You can truly automate and get Trovata up and running, as this bullet notes,  it’s 60 minutes or less with no IT, really means no waiting for the business systems teams roadmap, their timelines, their priorities, you can get up and running in no time. And then again, real time visibility through one log in whether it’s mobile apps or on your computer and it provides you, gives you time back. So you’re not compiling data, analyzing data, validating a completeness of data. You’re spending your time reviewing it, stress testing. I’m thinking about it, figuring out ways to communicate it, creating scorecards and dashboards to share with your team or with your leadership team and help truly move and manage and move the business forward. So with that, I’ll open it up to questions. I know I ended up running quickly through some of these slides but open it up to questions all the way back to the intro or any of these tests. I’d love to hear your thoughts and feedback.

Yeah, that was perfect. Thanks so much for sharing those type. Scott we’ll get through just a few questions here and look to wrap things up right at the half hour. So first off, what is the most painstaking process you manually did at a previous role that you have now solve for with automation?

So one of the most painstaking things I’ve done is again, nope, nope. Excel. It would… it would be without excel on the finance world. But most painstaking thing is really combining a cash flow model and it really wants to the point where we as a business really wanted to report and needed to report days, zero communication. So as a matter of the painstaking thing was through my Bank account and affiliate global banks accounts literally log into… into all those banking portals to download that Bank statement information to have the completeness of my cash position. They’re reporting was even off of different times to some series. I had a two day lag and even the availability that online portal gave me 10 those transactions. So how to download it, reconcile for completing some data. Then because of the limited transaction data in there, I’ve uploaded into excel information from concur or a lot of our TV spend wise. We still have a lot of significant spend going through TNT and then my Netsuite ap data, and then through V lookups and a lot of manual processes. I’d reconcile that with my cash activity into an excel financial model, cash forecasting model. Excuse me to really just get to my position. So again, that’s the most painstaking thing because when you really want to tell the story of what happened and identifier cash position, I’d spend probably depending on the timing, anywhere from six to four hours compiling that data and sometimes literally only have 30 minutes to really analyze it and tell the story. You get… get it at that for the art and science come in. But through one portal that’s where you want it to be more science, that whole compensation side of it. So then you can spend the art on just communicating the story and really what it means to the business.

Yeah. So.

What are their pain points? Because I’ve been at Trovata for over two months now. And one huge onboarding thing for me coming into Trovata as the CFO is it’s a time to log in and get all my banking credentials with our banking partners. So I can get up and running and get my online access to the treasurer of this company and move cash and have cashes about. But on day one, we have Trovata up and running, I have full real time visibility into all my banking without still going through all those banking hurdles because, you know, our founder, how Trovata up and running, all of our banks linked. I have in real time, you know, day one, cash visibility to all of our accounts.

Yeah, that’s awesome. And I think that’s a perfect segue into this next question here and seems related, what do you have time for now within your role that you didn’t so much before without automation?

Yeah, that’s a good question. Again, I can’t reiterate enough about how much time is spent by myself or my teams in the past with compiling the information. So we just have good data to start looking at and making decisions off of. So I’d say the big changes. I spend way more of my time communicating to my investors, founders and leadership team on what our cash position cash info cash out for. I mean to the business and truly making strategic this decisions. And then… and then go backwards and again, that has to do with thinking about our pricing model. Our billing models are vendor terms and really how we want to stress there all the way into hiring decisions and timing again, managing not working capital. So I spend way more time thinking and having those discussions with the business and less time trying to see what happened in my count, you know, to my cash again info right now from a, from all those happenings.

Awesome. Well, I’ll just get to one more question here and then we’ll wrap things up. I think he might have touched on this on your last slide here. But just to break it down again, what is your, about us automated forecasting model based upon? Is it just historical data?

Yeah, great question. So I’m a big fan of this to me. I was chatting with someone on the team the other day about this is for me, we’re still small growth stage company. So I don’t have the biggest team. And one thing that Trovata is and cash forecast forecasting provides me, it’s like having a, another analyst in the trenches with me in the trenches. Excuse me with it. I can bounce ideas off of. So the machine learning really has all that history in at like I touched on earlier, all the historical data, all your historical Bank transaction data, but also what it houses all of your historical forecasting data and inputs in assumptions that you’re putting in there. So through the out there’s algorithms that actually look at all that prior trending, your plan versus forecast. Excuse me, actual versus forecast results and those algorithms teach that get smarter and… smarter and again provide you some insight on what it expects as well too. So you can bounce that off of your own scenarios, durable mindset factors that you might be don’t know knowing that are going on outside of, you know, that haven’t hit this system yet. But again, the key is that AI and not consistent continuous learning. Where again it’s like having a… a cash financial analyst in the trenches with you know, bouncing ideas and recommendations off of the more you use it, the better it gets and the more accurate it gets with all of that again historical data, the more forecasting scenario planning, the more data and inputs it has in their.

I’ve had AI is, yes, that’s very helpful. Wants a perfect answer. Alright. Well, it looks like we’ve got just about a minute left here. So we’ll go ahead and wrap things up. Thank you so much Scott for jumping on today and sharing your expertise. And thank you so much to everyone who joined this live. The recording will be available shortly and we will be sending out the gift cards to your emails over the next few days with that said, I hope everyone enjoys the rest of your day. And thanks so much for joining us.

Great. Thank you.

Thanks.

Speakers

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Scott Harrington
CFO, Trovata

Scott brings over 20 years of finance and accounting experience to Trovata, including financial leadership in high-growth publicly traded and privately held companies, including Microsoft, Screenlife (acquired by Paramount Pictures/Viacom), and Coinstar. Most recently, Scott held key finance roles at two of Seattle’s fastest-growing tech unicorns – Qumulo and Highspot. During his time at Qumulo, Scott was instrumental in scaling the business through hypergrowth and raising over $250M in equity through funding rounds. Scott began his career at Moss Adams, in Seattle, where he earned his CPA after graduating with a BA in Accounting from Western Washington University.