Cash Flow Use Cases, Tips & Tricks, and More with Linda Lifchez and Will Leonard

Linda Lifchez: Hey, everyone. Welcome to Cash Flow Use Cases, Tips& Tricks. My name is Linda Lifchez, I'm a solution architect here at Planful and Will Leonard and I are going to talk a little bit about how you can implement pretty cool cash flow system in your Planful environment.

Will Leonard: Thanks Linda. So, first we're going to talk a little bit about cash flow methods in Planful just to level set. So, we have three main methods we're going to look at. The direct method is when we have the type of movement for your cash, explicitly reportable and available in a Planful. Usually this is going to be from a sub- account type of dimension, and this dimension is separate from your GL account dimension, and it actually identifies those cash inflows and outflows and what type of inflow and outflow it is for your cash flow statement. This is relatively rare because a lot of our ERP and GL systems don't necessarily have this type of movement available for us to go ahead and pull into Planful, but some do and we do see this and it's definitely a great use case for a direct cash flow method. On the indirect side so, the indirect method is where the type of cash movement is actually implicit in your P&L and balance sheet. This is the more traditional, definitely the most common as far as what we see in Planful for both actuals and forecasting. We can also do a hybrid method, now we see this more often in forecasting and budgeting, but this is where some cash flow lines would use the direct method and some cash flow lines would use the indirect method. And a good example of this is for example, if you have a revenue planning model, that's where you would collect information such as your billings and we could feed those billings into a billings and collections model, where we have drivers that indicate how long it's going to take to collect based on the DSO for example and then we can push that information to our cash flow model, where the cash receipts are direct. You might have some cash outflows that are also direct and then everything else would use the indirect method. A little bit more about direct and indirect. You can see on the right side graphic here we have this movement type dimension, and that's all driven based on the cash account. So, we don't need to look at any other GL accounts except for cash where we use the direct method. With the indirect method, we don't have that dimension so we're only using GL accounts, P& L and balance sheets to derive the type of movement for the cash flow statement. Again, with the direct method that movement type is going to be available from your ERP or your GL system or a source model for dynamic planning and with the indirect method of course, that information is not available or we choose not to use it for our purposes. One of the nuances with cash flow planning and reporting on actuals and Planful is that if you have foreign subs that have a different local currency than your common currency, for us that would be a USD for other companies and a lot of our customers that's might be pounds or it might be euros. Well, the cash movement itself needs to be translated at the average rate. So, you have a beginning balance that's based on the prior period and then you have an ending balance that should tie out to your balance sheet for the ending balance and cash for any given period, but that cash activity needs to be translated at the average rate and so, some of the solutions for that for example in structured planning, we can separate out the cash flow accounts or optionally we can use a custom reporting member to retranslate everything at average. In either case we can calculate the epics impact, we can use report sets, custom members, we could even use calculated members on the account dimension to calculate that epics impact. In dynamic planning, essentially, no matter what we do in dynamic planning we're going to have cash flow lines as a dimension and then all of that activity will be retranslated at the average rate regardless of the source and we automatically calculate the epics impacts there as well. Let's talk about baby cash flow, Linda, take this one away.

Linda Lifchez: So, baby cash flow is not how much you're spending on formula and diapers. It's just a fun way to describe a simple cash flow statement. It maybe 90, 95% of the lines in the statement can be calculated just by taking the period activity and then the rest is manual inputs. So, that's just a fun way to describe it. Now, in a moment we're going to go into a demo environment and I'll show you an example of a baby cash flow using an actual data template.

Will Leonard: Excellent. And after that we'll look at cash flow forecasting and Planful for both structured planning and dynamic planning and we'll show some good examples of each. Just real quick, why plan for cash flow? This is definitely a hot topic and it has been for the last year and a half, but some of the benefits are that you get that speed of information, right? So, you can quickly assess based on your business drivers and your assumptions what your cash position is going to be at any point in time, usually in the next say six weeks to six months. Sometimes you need a little bit longer and we can certainly use driver- based planning to determine a long- term view of that cash flow. You also need a more reliable financial plan. So, one of the things that we've noticed for our customers that do cash flow forecasting is that a lot of times they'll go back to the assumptions that they've input in the P& L and balance sheet and they'll actually review some of those drivers because they actually don't match reality very well when it translates to a cash flow statement. So, you get a more reliable financial plan just from doing cash flow. You also have your finger on the pulse of cash drivers, and that becomes super important because you can actually manage to those cash drivers in real time, once you're able to determine what your cash position would be given a certain set of assumptions. Best example that we've seen certainly recently and the most powerful example is with COVID- 19. All of a sudden we had so many customers coming to us saying that we need to get a firm grasp on cash flow, and we need to understand if we make certain decisions today, what is our cash flow position going to look like given best case, worst case type of scenarios. So, that became everyone's focus all of a sudden, as soon as this pandemic hit, but that's definitely the most powerful example for why a cash flow is necessary that we've come across in recent times. So, let's jump over to the demo Linda, you wanted to show the actual first from the actual data template, right?

Linda Lifchez: That's correct. Well, let's get into our demo environment. First thing we want to talk about is setting up a cash flow hierarchy so that you can actually input data and report on it. So, we're looking at our account hierarchy here, and you can see we have a separate roll up for cash flow and within that cash flow roll up, we have net cash from operations, from investing and from financing and each of these roll- ups has their own set of leaf accounts in there. So for example, we have accounts receivable leaf account, we'll be able to input some data through an actual data template or a planning template. Now, one thing I'll point out, this is just my tip, the way I do my cash flow hierarchies, I always precede the account number, the account code with a CF_ and that just makes it easier to pick it out when you export the tree or export the list of leaf accounts, that's just me not a requirement though. So, we have our cash flow hierarchy set up and ready to go. So, let's take a look at an actual data template. Now, this is a great example of baby cash flow. So, on this template you're going to notice that we have just a handful of accounts that are in yellow, meaning that they are where you would actually enter data manually. So for example, at the top we have the equity investments, non- cash severance, those are manual input accounts, in the middle there the changes in operating accounts, these are all calculated rows. So, we clicked on this and you can see it's just taking the difference ending balance minus opening balance and it's looking at row 55. So, if we scroll down a bit, we're going to see that row 55 is from the balance sheet itself. So, this template has the entire balance sheet at the bottom of it as reference cubes so then we can just pull the balance sheet into the template, the user opens it up, keys in the few lines that they need to and the rest is calculated for them. Super easy, super simple, baby cash flow. So, that's an example of an actual data template. Will's going to take over now and we're going to look at a forecast template.

Will Leonard: Perfect. So, we'll continue with the theme of the baby cash flow and this is an operating template so, this template is called balance sheet and cash flow, within this template we're entering drivers and assumptions that create both the forecasted balance sheet as well as the cash flow statement all in one. And what we're doing is we have a bunch of calculations that are based on these different assumptions so, you can see we have base sales outstanding, base payables outstanding and as well as a couple of other drivers, we can input a top. We also have some lines that are available for input some non- cash items and some other items along the way. As we get down into the balance sheet and cash flow assumptions, we can see some of these lines also being calculated and they're interrelated, right? So, these lines down here are writing to the cash flow accounts, the ones up above are writing to the balance sheet accounts and then when we combine those two after the templates are submitted and the forecast is ready for reporting, we'll have of course the balance sheet and cash flow ready to go. We were talking briefly about currency translation. So, one of the things that is unique about these cash flow accounts is the way that they're translated. We can see that the currency type here is the average monthly rate. Now, normally accumulated depreciation on the balance sheet is going to be translated at the end of month rate, but we're putting the same monthly activity from the balance sheet into this cash flow account and then this is translated at the average rate, that's for cash flow presentation purposes. Now, another thing that we can do as we segue to a dynamic planning, is I'm just going to search for an accumulated depreciation balance sheet account. So, I can see here this is my software. We'll just locate that in the hierarchy so, we can see this rolls up to PP& A and this account of course is a balance sheet account it's translated at the end of month rate. But, we also have the special cash flow attributes here. Now, what are these? We can actually have a pretty unique cash flow presentation, either in a dynamic report using these reporting attributes or in dynamic planning, using these attributes and what we can do is we can map this data directly from these accounts into dynamic planning using these attributes. This is something that we have definitely done for a couple of customers in the past it works great. What we do is we will map two different dimensions from the same accounts so, this is the cash flow row it's going to a depreciation row, this is the cash flow column, meaning in which column on the report do we want it to show up? In practice what that looks like is this right here. So, in this example cash flow statement, we can see the cash flow rows are presented here, we're actually showing this for this demonstration and then we're also showing the cash flow columns. Now, this is a nice presentation because you can see exactly which cash like category of account is driving the different types of movement down the cash flow statement. We have a normal operating investing financing cash flow statement here, and we have the different balance sheet and P& L account category going across the top, and you can see that the data, it looks it's a little bit sparse because it's showing exactly where the amounts are being impacted for each. So, this is a nice type of report for presentation purposes, you can see the different company codes represent different currencies as well and then the consolidated view. Very nice presentation, especially as you're working through the cash flow statement and you need to get a good handle on what is driving what type of activity. Now, let's look a little bit more at dynamic planning. I'm actually going to open up. So, what we're going to look at here is just a dimension and dynamic planning. This is for a direct cash flow statement and one of the cool things about dynamic planning is we get to customize the dimensionality, however we want. So, we have a very unique example here where we can take our current forecast and our prior forecast. These can roll up into a current versus prior parent where one adds and then one subtract so, you get a natural variance reporting, I'll actually show you that report in a moment. We can also... let's see, let's go into... this is going to be the indirect statement of cash flows. So, this is just a pretty normal weekly cash flow statement. This is another reason why you may want to do cash flow reporting in dynamic planning, which is because you can have custom customized dimensionality, you can also have customized time granularity. So weekly, daily cash flows and this data would be mapped for your actuals, you would map it directly from your trial balance. We can also map your forecasted net income and balance sheet accounts from structured planning directly into this model and create drivers to spread this out weekly. We can also calculate the balance sheet and the cash flow statement directly in dynamic planning. Now, one of the cool things about the direct cash flow that we've seen is a lot of times those forecasted receipts and disbursements and which types of receipts and disbursements they are, you might get those from a secondary financial system. So, those forecasted receipts a lot of times and disbursements are contractual in nature and we can pull that data in directly and what we can see here is just that these different types of cash movement are all based on the cash account and all of these are matched directly into our direct cash flow model. This is a monthly view, we've got a nice chart at the top here that just shows the total movement. We can also take a look at the same model, but from a daily perspective and we can see just for the month of March, looks like we're going through April 30th here we have the current and prior forecast charted and this is another nice view to keep your finger on the pulse of your cash position based on the type of movement. Of course, all of this information can also be viewed on a dashboard up in the web so, we'll just take a quick look at that, let me just go into dashboards and we can see a lot of the same information we were just looking at in spotlight for Excel, this is also available in our dashboard so, it's directly connected actually to our direct cash flow model. You can see the current prior forecast. This is over the scope of the forecast, we have a nice waterfall here so, our beginning cash, our operating investing and financing activities, and then our ending cash as well. And of course, just current versus prior forecast type of charting in addition to that. This pie chart is nice because you can actually look into the different categories here to see what is affecting cash the most and what are the different categories within that so, you can continue to drill into that activity for either actuals or your forecast and see what those drivers are. I mentioned the variance analysis, the first thing. So, this is actually a pretty simple report. What we have here is just variance analysis report. This is suppressing our rows and our columns so that we can see exactly which movement types and for which periods the current versus the prior forecast had a variance. We're just reporting on that current versus prior parent from the scenario dimension, if you recall, that's the parent of the current and prior one is additive once subtracts, that gives us some automated variance reporting and just allows for a little bit more powerful analysis. So, let's talk about some key takeaways here. So, we talked about why is cash flow forecasting important, obviously better planning is it's going to make for better decision- making and which way should you do a cash flow forecasting, should we do direct indirect hybrid? Should we do the baby cash flow method? Should we use structured planning? Should we use dynamic planning? Well, all of that is going to depend on what makes the most sense for you and your use case. We can definitely help you out along the way to come up with the best design and most user friendly process for that. And of course, if you need any help with any of these concepts, please feel free, reach out to your customer success partner or our newly launched Planful engage forum, which has a knowledge base and allows you to interact with other Planful customers, ask questions, share what you know and bounce ideas off of each other, that has our customers, we are also on that so, you'll see our customer success teams, our professional services teams interacting with you on that forum as well. Thank you all very much and happy planning.

Linda Lifchez: Thank you.