Cash Flow Forecasting Guide


by Keith Sawdon, Deputy Treasurer, Oakland County, MI on behalf of the Association of Public Treasurers

A cash management tool for the prudent public investor, complete with a PowerPoint presentation to lead you through the steps of building a cash flow forecast. Topics covered include: components of a cash flow forecast; types of forecasts; the benefits of forecasting; tips to improving your forecast; and much more.

Introduction

Public treasury and finance officials and their investment staff understand that the public expects its funds to be safe, remain liquid enough to meet current payment requirements and that the return on investment is fair compared to the current market.

As public investors, we make sure the public's funds are safe by doing our credit analysis homework and by designing a good system of internal control. We also diversify our investments to further safeguard the public's funds; and we ensure a fair and competitive return on investments by competitively bidding security purchases and by looking at investment yields for varying levels of credit quality.

But how do we ensure liquidity? For any good investment program to be effective, it is important to know and be able to forecast your cash flow position. Therefore, forecasting cash flows is one of the more important tasks the investment official will need to perform.

Cash flow forecasting is the process of predicting cash flow, at least on a monthly basis, for the purpose of managing your liquidity needs and for investment control. Accurate forecasting, therefore, provides the investment official with the essential information needed to make investment decisions and is an effective cash management tool.

A Guide to Cash Flow Forecasting demonstrates how to forecast your cash flows by applying historical information to the current fiscal year's budget to project your future cash flows, and compare forecasted cash flow with actual cash flows (for variance analysis).
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