Having a good scenario forecast helps you to avoid risks in your company. This means that you will be able to have solutions to a possible problem that may arise in the future. Multiple scenarios must be prepared prior to a crisis. The idea is to foresee it before going through it. So we tell you how to make a good scenario forecast: predict your cash flow.
Having a worst-case scenario will help you know how to act, or what actions to take, before the crisis becomes a reality, allowing us to prepare ourselves to take the best alternatives. This type of cash flow management is essential to stay ahead of cash reserves.
Preparing multiple cash flow scenarios with different scenarios helps to think through the consequences of different decisions and what impact they have on cash flow .
We will mention three, which can help you to have a starting point.
The ideal number of financial scenarios
- An optimistic scenario: Expect the numbers to improve In the event that everything turns out better than expected
- A pessimistic scenario: Think about the worst case scenario and that the objectives set are not met.
- A realistic scenario: Based on data and analysis you have a perspective of what could happen.
Some important considerations to keep in mind when creating new anticipation scenarios:
- There will always be factors that you cannot avoid, because they will be out of your control and therefore you will not be able to anticipate.
- Having prior knowledge about the economic crisis, you will know how to face the situation in the best way.
- New situations may arise, such as COVID-19, which cause uncertainty to be generated and we have no control over them.
- The world has many aspects and the socio-economic one is very important, as it directly affects our business. Being up to date will help to foresee some negative scenarios.
Scenario forecasting: predict your cash flow
Finally, we will mention 3 scenarios that can identify that your treasury is in trouble.
1. You are too optimistic with the payment terms of your customers: They can’t guarantee cash coming into your till, then the scenario would fall down on the revenue side: Invoicing and payments by customers. Payment terms are almost always thought of as 90 days instead of 60. This can help estimate cash amounts and give you more time to make adjustments. But it is not the exact solution, because there may be delinquent customers that cause your cash register to not have enough to make the necessary payments and generate a cash flow problem.
2. You have problems with your inventory: If you do not have the necessary stock, you may not receive the money and not be able to meet your objectives. In addition to not complying with customers and looking bad as suppliers. This generates cash flow problems due to non-compliance with established contracts.
3. Outstanding receivables are too high: If you have a very large receivables portfolio, it is possible that you are not acting efficiently in the collection, which generates a lack of cash, i.e. a problem in the cash flow, because more expenses are generated than income.
Try Orama without obligation and you will be able to simulate scenarios based on your financial forecasts. You will never again be caught off guard by a lack of liquidity due to poor cash management.