Liquidity planning process; why simplicity matters….

Everyone will agree that liquidity planning is an essential part of managing a company. As dedicated consultant, we speak with many different companies.

One of the reasons we are invited to speak with the CFO, is because the company’s current processes are no longer considered to be efficient. In most cases we come across two different situations:

Using Excel

The liquidity planning is done in Excel and management acknowledges that this has some essential disadvantages. At a certain point, the use and maintenance of the spreadsheets become time-consuming and the error risk increases continuously. Usually the calculation sheet is managed by one person only, meaning that the knowledge is not distributed in the organization and therefore creates an additional risk.

Furthermore, most spreadsheets miss valuable functionality like e.g.:

• drill down from consolidated plan positions to their details
• currency differentiated planning and easy conversion
• reflection of cash flows from financial deals in current forecast without delay
• automated and immediate import of cash flows from ERP systems
• easy PLAN/ACTUAL deviation analysis
• audit trails and user access rights system to comply with corporate governance guidelines

Using the ERP

The second situation is when we encounter a liquidity planning process that is supposed to work via the existing ERP platform. Due to the complexity of operation the cash forecasting process does not work as required. Next to the above, various other difficulties in handling can appear in ERP-based solutions, e.g. missing calculation of market values, no consideration of interest rate curves, impractical change of planning structures, inadequate automated integration of cashflows from different sources.

Another issue we encounter, is that the implementation of the solution has failed as a result of too much internal resistance from local subsidiaries. This reason, of course, is agnostic to the system in use, whether it is self-made spreadsheets or ERP-based solutions. Therefore, it might be a good idea to implement an easy-to-use system which is especially designed for integrated liquidity planning automatically reflecting all cash flows from financial deals without delay and accessible for all users via internet.

To make a project a success, it is important that different stakeholders, often based in different countries, need to work together in a positive spirit.

Which software suits us best?