What’s your next move? The imperative of Agile Liquidity Forecasting in times of uncertainty and change

What is the problem?

Would you consider navigating an uncertain game of chess without a reliable strategy? This is the current challenge for many corporates (big or small) and their investors. The financial environment is full of unpredictable factors and economic hurdles that risk destabilising even the most well-prepared companies and investment portfolios.

Interest rates remain high, impacting existing facilities and making debt-servicing a formidable task for any organisation. Inflation is eroding purchasing power, leaving customers to tighten their belts and leading companies to seek additional funds quicker than planned. Add to this a landscape further complicated by tariff-rattled supply chains already strained by global disruptions, the burden of increased National Insurance and escalating operational costs.

Chris Coley

Partner

KPMG in the UK

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Given the continued unpredictability of the economic and geopolitical environment, corporate entities must adapt by placing liquidity at the forefront of their strategic endeavours. The bygone era of pursuing growth or turnaround strategies without a robust financial toolkit to analyse the impact of forecast liquidity has given way to a new paradigm.

Today, the mantra is clear: cash is king, and agility is the queen.

Who should consider implementing these cash strategies?

Is your company profitable and expanding but finds itself in a liquidity challenge or crisis? Maybe because cash is tied up, increasing working capital levels due to the required ramp up in operations? Or perhaps you’re encountering cash flow issues from broader financial and operational pressures? The way to managing these issues remains consistent. And here, we outline the essential tools and processes to stabilise and manage cash and liquidity issues effectively.

Our approach integrates best practices in a strategic manner and includes both cash flow forecasting, liquidity and stakeholder management, ensuring that companies, and their investors and stakeholders, can navigate the challenges faced. By understanding current requirements, engaging forecasting experts, and embedding iterative improvements, our strategy will provide a roadmap to enhance cash visibility.

Key benefits include: mitigating financial risks, reducing interest costs, optimising cash flow, enhancing valuation and improving operational efficiency. By identifying gaps and providing actionable recommendations, we drive sustainable change and unlock potential cash opportunities, ensuring that portfolio companies can operate smoothly, despite economic challenges.

Our recommended cash strategies

The following is what we consider to be the ‘knights’ at supporting our clients in the development and implementation of these various approaches, which can be carried out separately, but are most powerful when integrated and used strategically:

Develop a '13-Week' Short-Term Cash Flow Forecast

Creating a short-term cash flow forecast, prepared on a rolling weekly basis for 13 weeks, is critical for immediate stabilisation and future cash management. This tool provides insight into how many weeks of operating cash remain, identifies near-term obligations, and helps prioritise spending. The benefit lies in its ability to enable rapidly response to liquidity issues, ensuring that companies can take control of their financial future.
Form a Cash Steering Committee

Establishing this committee is essential for closely monitoring cash flow on a regular basis, whether weekly or even daily, depending on the situation. The committee's role is to oversee cash management efforts, ensuring that all financial activities align with the company's liquidity goals. Such a committee fosters collaboration and accountability, leading to more informed decision-making.
Explore Wider Cash and Funding Options
Understanding available cash and funding solutions is crucial. Options include, inter alia:
- Rapid Working Capital Optimisation: If cash is trapped in the working capital cycle, optimising processes can release funds quickly. This may involve renegotiating supplier terms or improving inventory management, both of which can lead to significant cash flow improvements.
- Refinancing and Extending Current Liquidity Facilities: While refinancing can offer relief, it is important to be wary of potential pitfalls, such as unfavourable terms that could exacerbate financial strain. The current market climate often presents opportunities for renegotiation, but assessing the long-term impact is vital.
- Raising Additional Financial: Securing additional financing may provide the necessary cash injection but comes with the downside of increased financial obligations. When going to the wider debt market it is crucial to evaluate the cost of debt against potential returns, especially in a high-interest rate environment.
Develop a Medium-Term Financial Forecasting Model

A comprehensive financial forecasting model that integrates liquidity forecasting based on available free cash for debt service is indispensable. This tool should allow for strategic scenario analysis and sensitivity testing, equipping companies with the ability to make informed decisions and gain lender confidence by demonstrating a thorough understanding of medium to long-term liquidity needs.
Engage with Stakeholders Transparently

Open and honest communication with stakeholders, especially lenders, is vital. By transparently sharing plans and strategies to address liquidity challenges, companies can secure the support and confidence needed to navigate turbulent times successfully. In today's market, stakeholder confidence can be a game-changer in accessing necessary funding and support.
Utilise a Common Information Platform

Engaging an independent advisor to establish a common information platform can provide stakeholders with a clear view of the company's liquidity position and stabilisation efforts. This transparency reassures stakeholders about the current situation, cash requirements, and strategic actions, facilitating constructive dialogue and cooperation.

Conclusion: The Centrality of Cash

In any strategic plan, be it stabilisation, sustainability, or growth, cash must remain the focal point. By prioritising liquidity management and adopting an agile approach, companies can not only weather economic storms but also position themselves for future success. In these uncertain times, the ability to adapt and respond swiftly to financial challenges is more critical than ever. As markets continue to fluctuate, maintaining a robust liquidity strategy is not just a choice—it's an imperative for survival and growth.

For enhanced cash visibility and forecasting accuracy, contact our team today. We provide solutions that eliminate unwanted surprises, ensure reliable forecasts, and drive continuous improvement, whilst ensuring you have the data needed to make informed strategic decisions. When cash is locked, our Working Capital team can bring a fresh perspective to help release cash from working capital - unlocking that value brings countless benefits. Let us help your portfolio companies navigate cash pressure confidently and efficiently.