Four Out of Five Companies Can’t Forecast Cash Flow

From Industry Week: “The uncertainty of being unable to accurately forecast mid-term cash flow creates a potentially dangerous scenario when combined with shrinking levels of cash on hand in most industries, plummeting revenues, reduced margins, and limited availability of credit and cash from other external sources. A new study from the Hackett Group found that only 22% of companies say they can forecast mid-term (2-3 months out) operating cash flow to within 5% accuracy. Previous Hackett research also showed that only one in three companies can forecast earnings to within 5% accuracy, and less than half can make the same claim about sales forecasting.”

“It’s disturbing to think that most companies are virtually flying blind in this critical area,” said Hackett Chief Research Officer Michel Janssen. “This problem is by no means a new one. But it’s been exacerbated by the current economic climate, where it’s more critical than ever for companies to be able to understand and predict their cash flow from operations.”

Top performers do significantly better than their peers. A total of 74% are able to forecast mid-term cash within 5% accuracy. These top performers also complete their forecasts in less than half the time it takes typical companies, and require fewer staff to complete the process.

Several major findings from the study looked at how companies must improve organizational collaboration and alignment and the underlying technologies that support cash forecasting. Specifically, about 70% of all companies surveyed rely almost exclusively on standalone spreadsheets as their primary cash forecasting tool, with few turning to best-of-breed applications or ERP-related systems.” Four Out of Five Companies Can’t Forecast Cash Flow

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