Professional Documents
Culture Documents
m
Heads Materials Revenue
What was achieved?
Source: Project Kestrel analysis
P&L impact from initiatives
15
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
(0.3)
(0.2)
(0.1)
0.0
0.1
0.2
0.3
0.4
0.5
J
a
n
-
0
3
A
p
r
-
0
3
J
u
l
-
0
3
O
c
t
-
0
3
J
a
n
-
0
4
A
p
r
-
0
4
J
u
l
-
0
4
O
c
t
-
0
4
J
a
n
-
0
5
A
p
r
-
0
5
J
u
l
-
0
5
O
c
t
-
0
5
%
m
o
v
e
m
e
n
t
Kestrel FTSE 100
What was achieved
Source: Yahoo finance
Share price movement
Board
approval
Planning Execution
Process
embedding
16
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Critical success factors
The role and extent of the authority of those involved in running the
cost reduction effort should be clarified and agreed with business
and functional heads
Strategic intent must be translated into clear financial targets in
defined timescales:
Cash
Profit
Any significant cost reduction project will require:
Energy & leadership
Prioritisation
Dedicated resources
Executive
commitment
A clear financial
objective
Authority
17
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Critical success factors
The launch can be structured to use meetings, communications,
board briefings and small pilot projects to build momentum and
engagement.
Coming up with scale changing cost reduction ideas will require you
to challenge the norms and look at the cost base from different
perspectives.
The best cost reduction ideas emerge when people work together
to generate ideas:
Cross-function, seniority levels and geographies
Involvement
Challenge
Momentum
18
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
The financial case for KPMG involvement
Quicker
do this day in, day out
have techniques that surface the issues
track progress religiously
Better
conversion
know the devil is in the detail
base our approach on understanding numbers
track savings actions right through to the bottom line
Broader
access to niche professionals
an objective view
experience of a large range of projects
As a matter of course, we will write the business case for you as part of the proposal process
Because we have
Because we
Because we
If you have got
50m of
savings, well
get 75m
8 months
instead of 12
months
Better
conversion of
savings to profit
19
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Q&A
Cash flow forecasting
Eoin Connaughton, Director, KPMG
29 June 2006
ADVISORY
1
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Introduction
National Director KPMG Cash Management, UK
Over 50 cash assignments in last five years
Large and small companies variety of industries
Distressed and non-distressed
2
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Defining cash management
What it is not:
Treasury management
What it is:
Understanding how cash flows around a business
Forecasting cash requirements
Improving cash controls
Generating cash
Preserving cash
Applies equally in distressed and non-distressed
situations
3
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Monitoring
Implementing
Forecasting
Credit
Control
Accounts
payable
Inventory Tax
Capex
Purchasing
Sales
Finance
Prioritise cash improvement initiatives
Prepare action plans
Set key milestones and accountability
Implementation
Covenant compliance
Monitoring of cash balances
Variance analysis
Prepare cash flow forecasts
Determine available headroom
Implement/strengthen cash controls
Our cash management programme
Embed initiatives in reforecast
Communicate progress to
Board/stakeholders
4
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Why forecast?
Preparation will focus management on:
Key cash drivers
Cash improvements
Risks/sensitivities
Opportunities
A management tool to proactively manage cash
Provides visibility of funding requirements
Near-term
Short-term
Long-term
5
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Benefits of cash forecasting
Short term
Control cash in the
business
Drive improvements
Identify any immediate
issues
A tool to drive cash
generation initiatives
Highlight funding
requirements
Medium term
Measures impact of
strategy
Identifies any
problems
Used for stakeholder
communication
Suitable plan for
determining medium
term financing
structure
Long term
Measures impact of
strategy
Used for stakeholder
communication
Assists in determining
long term funding
requirement
Operational Planning Strategic
Putting finance at heart of business, benefits are:
6
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Commonly encountered short-term forecasts:
Closing balance forecast
EBITDA forecast
Funds flow
Run rate forecast
None provide sufficient detail of key inflows in near-term and short-term
Types of cash flow forecast
Therefore we use a rolling 13 week receipts and payments forecast for the
short-term
For the medium/longer term we use funds flow given the need for an integrated
P&L, balance sheet and cash flow.
7
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
The cash flow forecasting process
Determine inputs
and pro-forma
Accountability/
responsibility
Timetable
Opening
balance sheet
Obtain inputs
Document
assumptions
Populate
forecast
Management
review and
challenge
Identify risks and
sensitivities
Management
sign-off
Forecast and
commentary
Variance analysis
Risks and
mitigating actions
Set up
Forecast
preparation
Challenge
& review
Reporting
8
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Receipts and payments forecast
It captures all flows with a clear anchor point:
Rent, rates,leases,
wages etc
New capital
expenditure
Accruals
New purchases Trade creditors Outflows
Rental income, etc. Disposals/
VAT etc
Other assets
New sales Trade debtors Inflows
Bank/net debt
position
Balance sheet
accounts
Opening cash -
Forecast activity
-
Regular receipts/
payments
9
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Forecasting by line item
Opening cash position
Debtor and new sale receipts
Other receipts
Supplier and new purchase payments
Accruals unwind (plus VAT)
Direct debits and standing orders
Payroll and pension
PAYE/VAT
New capital expenditure
Bank interest and fees
Other payments
10
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Who should be responsible?
Finance
Inventory manager
Tax manager
Payroll manager
Accounts payables manager
Purchasing manager
Treasury manager
Sales manager
Depending on the size of and level of resource within a
business:
Property manager
Credit controller
CAPEX manager
11
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Monitoring
Implementing
Forecasting
Credit
Control
Accounts
payable
Inventory Tax
Capex
Purchasing
Sales
Finance
Prioritise cash improvement initiatives
Prepare action plans
Set key milestones and accountability
Implementation
Covenant compliance
Monitoring of cash balances
Variance analysis
Prepare cash flow forecasts
Determine available headroom
Implement/strengthen cash controls
Monitoring improves accuracy
Embed initiatives in reforecast
Communicate progress to
Board/stakeholders
12
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Monitoring
Monitoring comprises:
Actual vs. forecast
Forecast vs. re-forecast
Cash KPIs
Benefits
Identifies errors in cash forecasting methodology/completeness of flows,
if applicable
Identifies any major changes in assumptions
Impact of variances reflected in preparation of new cash forecast
Changes to cash forecasts can be explained to board/stakeholders in
advance of their questions demonstrating finance management control
13
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Monitoring: actual vs. forecast
Purpose:
To compare actual result to forecast result
Basis of preparation
Prepared daily/weekly
Actual vs. forecast for each line item
Proper explanation of variances:
Timing
Permanent
Benefits
Identifies errors in forecasting methodology/completeness of flows, if applicable;
and
Impact of variances reflected in preparation of new forecast
14
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Monitoring: forecast vs. reforecast
Purpose:
To compare current forecast to previous forecast which is understood by all
parties
Basis of preparation
Initially compare weekly flows between the two forecasts and identify reasons
for variances
Benefits
Identifies any major changes in assumptions
Determines whether any corrective action is required in advance of finalising
forecast
Major changes to forecasts can be explained to stakeholders in advance of their
questions demonstrating management control over forecasts
15
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Monitoring
Implementing
Forecasting
Credit
Control
Accounts
payable
Inventory Tax
Capex
Purchasing
Sales
Finance
Prioritise cash improvement initiatives
Prepare action plans
Set key milestones and accountability
Implementation
Covenant compliance
Monitoring of cash balances
Variance analysis
Prepare cash flow forecasts
Determine available headroom
Implement/strengthen cash controls
Cross-functional involvement enhances
control and improvements
Embed initiatives in reforecast
Communicate progress to
Board/stakeholders
16
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Short-term receipts and payments forecast
It captures all flows with a clear anchor point:
New capital
expenditure
Rent/rates/leases
Wages
Accruals
New purchases Trade creditors Outflows
Disposals/
VAT
Rental income
Other assets
New sales Trade debtors Inflows
Bank/net debt position
Balance sheet
accounts
Opening cash -
Forecast activity
Understanding cash flows enables improvements to be driven
throughout the business
Better matching of
flows
Improved and
accelerated inflows
Reduced
spend/purchasing and
outflows
Improvements
17
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
There are numerous opportunities that we
look for
Shorter term
Timescale
Longer term
Revise terms of trade
Quick
wins
Best
practice
Stakeholder
management and
communication
including cash
performance
Staff incenti ves
aligned with cash
KPIs
Cash
forecasting
Control
purchases
Introduce cash
KPIs to monitor
inventory cycles
Structural
Higher
commercial
risk
Lower
commercial
risk
Redesign supply chain
Revise
customer terms
Negotiate
creditor
terms
Demand planning
Business model
transformation
Outsourcing and
shared services
Margins
improvement
Revise credit
controls
Payment
controls
Overdue
debtors
collection
Direct and
Indirect Tax
Property
portfolio and
redundant
assets
Identify non-core
assets for sale
Invoicing
Strategic
Treasury
Capital
expenditure
18
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Helping embed a cash culture
Internal
expertise
Incentive
structures
Management
sponsorship
Reflects
priorities
Reason for the
change
Leadership by
example
The skills to
make the change
The appropriate
structures
19
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Wrap-up
Monitoring
Actual vs forecast
Forecast vs forecast
Cash flow
improvement
Match/improve flows
Working capital
Other assets and liabilities
Forecasting
Short-term: receipts and payments
Longer-term: integrated P&L, B/S and CF
20
2006 KPMG LLP, the UK member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are registered trademarks
of KPMG International, a Swiss cooperative.
Questions