Deloitte CRG

Cash Flow Management:

A balancing act of technical know-how and finesse

Deloitte Transactions and Business Analytics LLP

May 22, 2014
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Overview of The 13-week Cash Flow
• What is it?
 A tactical tool to help companies understand and manage short-term liquidity

• When is a Company (typically) required to create one?

 During a liquidity crisis or at times of distress

• What purpose does it serve?

 Provides greater visibility into potential upcoming points of liquidity difficulty, while
allowing a better understanding around which to frame a restructuring

• What deliverables may be submitted to the stakeholders?

 13-week cash flow forecast (summary level)
 Borrowing base (if applicable)
 Weekly forecast vs. actual (variance report)

• How does the 13-week cash flow compare to an integrated business plan model?
 Tactical vs. strategic view of the near term
 Indirect and/or direct in integrated model vs. direct method in 13-week cash flow

• Always perform analysis on a “book” basis, not a “bank” basis

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 13-week Cash Flow Forecast Example
Week Count Total

Projection Period
Days 0 7 14 21 28 …. 77 84
Week Ending 18-Jan 25-Jan 1-Feb 8-Feb 15-Feb … 5-Apr 12-Apr Total
Total Sales 2,000 6,500 - 2,950 ………….. - 30,450
Cash Receipt
Sales and Receipts Operating Receipt 3,500 5,000 500 5,000 ………….. 1,750 36,200
Excess Inventory Receipt ………….. 1,500
Total Receipt 3,500 5,000 500 5,000 ………….. 1,750 37,700
Disbursement
Vendor Payment 2,000 3,750 - 1,000 ………….. 2,950 22,530
Gross Payroll 863 288 963 288 ………….. 863 8,063
Rent and Utilities 25 25 225 25 ………….. 25 925
Equipment Leases - - 500 - ………….. - 1,500
Operating Disbursements
Property Tax - - - - ………….. - 4,000
General Insurance - - 38 - ………….. - 375
Other 50 50 50 50 ………….. 50 650
Total Op. Disbursements 2,938 4,113 1,775 1,363 ………….. 3,888 38,043
Net Operating Cash Flow 563 888 (1,275) 3,638 ………….. (2,138) (343)
Non-operating Disbursement
Interest Payment - - 376 - ………….. - 1,349
Capital Expenditure 125 125 125 125 ………….. 125 4,500
Non-operating Disbursements
Professional Fee 100 ………….. 300
Total Non-op. Disbursements 125 125 601 125 ………….. 125 6,149
Net Cash Flow 438 763 (1,876) 3,513 ………….. (2,263) (6,491)
Revolver roll-forward
Beginning revolver 20,500 20,063 19,300 21,176 ………….. 24,729 20,500
Add: draw - - 1,876 - ………….. 2,263 18,218
Revolver and Availability Minus: Paydown (438) (763) - (3,513) ………….. - (11,727)
Ending revolver 20,063 19,300 21,176 17,663 ………….. 26,991 26,991
Availability (**) 2,938 3,586 1,824 3,537 ………….. (5,308)
(*) Check outstanding is as of Jan 14, 2013
(**) Availability is the difference between revolver (after covering float) and the lower of borrowing base/facility limit of $25,000
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Borrowing Base Example
Week Count

Projection Period
Days 0 7 14 21 28 …. 77 84
Week Ending 18-Jan 25-Jan 1-Feb 8-Feb 15-Feb … 5-Apr 12-Apr
Accounts Receivable
Ending A/R 13,500 15,000 14,500 12,450 ………….. 9,250
Accounts Ineligible 2% (270) (300) (290) (249) ………….. (185)
Receivable Eligible A/R 13,230 14,700 14,210 12,201 ………….. 9,065
Collateral A/R 85% 11,246 12,495 12,079 10,371 ………….. 7,705
Inventory
Ending Inventory 33,505 29,880 32,318 30,775 ………….. 37,200
Ineligible 5% (670) (598) (646) (616) ………….. (744)

Inventory Eligible Inventory 32,835 29,282 31,671 30,160 ………….. 36,456

Collateral Inv 50% 16,417 14,641 15,836 15,080 ………….. 18,228
Limit at $ 18,500
Collateral Inv - Applied 16,417 14,641 15,836 15,080 ………….. 18,228
Total Collateral Value 27,663 27,136 27,914 25,451 ………….. 25,933
Total Collateral Minus: Open L/C (2,250) (2,250) (2,250) (2,250) ………….. (2,250)
Value Total Borrowing Base 25,413 24,886 25,664 23,201 ………….. 23,683
Availability Calculation
Lower of Borrowing Base or Limit 25,000 24,886 25,000 23,201 ………….. 23,683
Revolver Ending Revolver 20,063 19,300 21,176 17,663 ………….. 26,991
and Plus: check outstanding (float) (*) 2,000 2,000 2,000 2,000 ………….. 2,000
Availability Ending Revolver (after covering float) 22,063 21,300 23,176 19,663 ………….. 28,991
Availability (**) 2,938 3,586 1,824 3,537 ………….. (5,308)
(*) Check outstanding is as of Jan 14, 2013
(**) Availability is the difference between ending revolver (after covering float) and the lower of borrowing base or facility limit of $25,000

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Weekly Forecast vs. Actual Variance Analysis Example
Current Week Cumulative Notes

1-week w.e. Jan 18 4-wks w.e. Dec 28 to Jan 18 Variance Explanation

Forecast Actual Variance Forecast Actual Variance (for 1-week w.e. Jan 18)
Total Sales 2,000 1,850 (150) 12,800 12,100 (700) Timing issue on ….
Cash Receipt
Operating Receipt 3,500 3,100 (400) 11,900 9,850 (2,050) Paperwork mismatch ….
Excess Inventory Receipt - - - - - -
Total Receipt 3,500 3,100 (400) 11,900 9,850 (2,050)
Disbursement
Vendor Payment 2,000 1,800 200 7,500 6,600 900 Certain disputed items not paid
Gross Payroll 863 830 33 2,450 2,510 (60) Overtime was slightly lower
Rent and Utilities 25 10 15 300 325 (25) Lower-than-projected electricity
Equipment Leases - 50 (50) 500 510 (10) One item wasn't paid ….
Line Items
Property Tax - - - - -
(same as 13-week General Insurance - - 38 41 (3)
Cash Flow) Other 50 35 15 200 575 (375)
Total Op. Disbursements 2,938 2,725 213 10,988 10,561 427
Net Operating Cash Flow 563 375 (188) 912 (711) (1,623)
Non-operating Disbursement
Interest Payment - - - 420 465 (45)
Capital Expenditure 125 175 (50) 500 1,050 (550) One machine broke down …
Professional Fee - - - 100 115 (15)
Total Non-op. Disbursements 125 175 (50) 1,020 1,630 (610)
Net Cash Flow 438 200 (238) (108) (2,341) (2,233)
Variance Testing
Variance Testing
Lower of 10% of Total 4-wk Cumulative Disbr 12,008 12,191 (183) -1.5% = Favorable variance
(if applicable)
(% of forecasted disbursement)

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Understanding the assumptions and corresponding results
• The assumptions embedded within the cash flow forecast should map and mirror
business movements through a company, reflecting a clear picture of liquidity:
 For example, in a negative cash flow situation:
 How much is the weekly cash burn rate?
 How long is the cash “runway”?
 Is the deficit liquidity temporary or permanent?
 In case of a positive cash situation:
 Is it due to improving operations or to changes in working capital?

• Understand how working capital moves in conjunction with the business operations:
 Accounts receivable (“A/R”)
 Changes in A/R component
 Inventory
 Events, such as inventory reduction, and how they impact borrowing base
 Accounts Payable (“A/P”)
 Potential pay-down of A/P, or aging of certain categories
 Be aware of non-A/P disbursements captured in accruals

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Understanding the assumptions and corresponding results (cont’d)
• Use the cash flow as an integral part of the planning process
 Who is involved in the preparation?
 Collaboration from various departments (e.g., sales, operations, finance,
accounting, etc.)
 Assign responsibility to management in charge of discrete item spending
 How is the weekly (daily) cash management process conducted?
 Determine who handles communications with the vendors and what message is
delivered
 Develop a disbursement approval process and delegate check signing authority

• Use the weekly variance analysis as a communication and learning tool

 Understand importance of cumulative variance analyses
 Establish and observe the trend over time

• Use components of income statement (“P&L”) revenue and expenses to sense-check the
cash flow
 Collections
 Material vendor payment goes hand-in-hand with COS of material
 Certain accrual item reflects total payment for the whole year
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Various levers on cash flow management
• Levers on cash flow management:
 Revenue and receipts
 Cash collections acceleration
 Aged receivables settlement
 Asset monetization

 Disbursements
 Equipment rationalization
 Vendor management

 Non-operating receipts or disbursements

 Contribution from stakeholders, such as over-advance or equity

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Leading practices in preparing a 13-week Cash Flow

• Document assumptions behind the cash flow forecast

 The forecast should reflect the current state, not a “pretty rainbow” scenario
 Reasonable operational reason to support major assumption changes

• The borrowing base is linked to the cash flow forecast

 Roll-forward of working capital accounts that is easy to follow

• Other considerations
 Under commit and over deliver
 Company should not play the “float” game
 Ensure that all trust-fund type payments are identified and covered

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Leading practices in preparing a 13-week Cash Flow

• Be there in person to manage cash

 Quick reaction is needed on many occasions
 Having a person in charge with good understanding of all moving components is
critical

• Develop a discipline of routine communications/calls on cash flow

 Do not hide from stakeholders

• Avoid general modeling errors

 Certain categories go negative, such as accounts receivable
 Revolver draw does not have a limit
 Accounts payable increases significantly
 Mathematical errors, row and columns do not tick and tie

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Presenter Biographies
Presenter Biographies
Contact Information:
2200 Ross Avenue, Suite 1600 Soegiono Hadiwijaya
Dallas, TX 75201 Senior Vice President, Deloitte CRG
D: +1.214.840.1669 Deloitte Transactions and Business Analytics LLP
F: +1.877.299.7388
C: +1.214.551.5742
Email: Soegiono “Sugi” Hadiwijaya has more than 10 years of combined experience in financial services and
shadiwijaya@deloitte.com turnaround management. He has provided financial advisory and operational restructuring services both out of
court and during Chapter 11 proceedings, assisting companies with tasks such as cash management, securing
Industries: of financing, business plan assessment, M&A activities, and financial modeling.
● Agribusiness Mr. Hadiwijaya is particularly skilled at helping companies better their value through profitability analyses, cash flow projections,
● Consumer Products budgeting, and strategic planning. Mr. Hadiwijaya also authored and served as lead instructor for Cash is King, the Deloitte CRG
nationwide training program on 13-week cash flow forecast and liquidity management.
● Energy
● Health and Wellness A few noteworthy engagements include:
● Manufacturing ● Assisted an $8.5 billion poultry processor during its Chapter 11 restructuring process, where he managed cash and liquidity
● Retail as part of the DIP arrangement, created the five-year business plan and financial projection, worked with management on
financial analyses regarding operational strategies and assisted in the negotiations of the restructuring plan, exit financing
● Telecommunications
and mediation proceeding on chicken plant closure
● Transportation
● Provided financial advisory services for a specialty custom-engineered steel enclosure manufacturer, where he managed
cash flow, developed business plan and assisted in operational turnaround efforts such as developing project dashboard and
assessing sales quote model
● Provided financial advisory services for a regional highway contractor, where he managed cash flow, led negotiations with
stakeholders on liquidity matters and assisted in lender negotiations
● Managed expert witness engagements in regards to post-confirmation cram-down interest rate for commercial real estate
portfolio, where he developed the expert report and created analyses on Till methodology application
● Designed a complex cash-collections model and conducted assessment on cash-acceleration initiatives during the
prepackaged bankruptcy filing of a $1 billion health club chain with more than 300 locations nationwide
Education:
● Performed a four-wall store profitability analysis for a $600 million Northeast-based arts and crafts retailer, where he analyzed
B.B.A., The University of Texas
store profitability trends and presented recommendations to management on the store footprint and closing plan
at Austin
Mr. Hadiwijaya also holds certifications as a Chartered Financial Analyst, a Certified Insolvency Restructuring Advisor (CIRA),
and a Certified Distressed Business Valuation (CDBV). In addition, he started and co-leads the Nextgen/Young Professional
initiative of Turnaround Management Association in the DFW area, and is involved in a joint education/mentoring program with
the University of Texas at Dallas on its restructuring/turnaround courses.
This biography may refer to client engagements performed prior to joining Deloitte Transactions and Business Analytics (“DTBA”) in the Deloitte Corporate Restructuring Group (“Deloitte CRG”).

18 Copyright © 2014 Deloitte Development LLC. All rights reserved.

Presenter Biographies
Contact Information:
200 Berkeley Street Rudolph J. Morando Jr.
Boston, MA 02116 Senior Vice President, Deloitte CRG
D: +1.617.437.3783 Deloitte Transactions and Business Analytics LLP
F: +1.877.300.6855
C: +1.617.875.2085
Email: rmorando@deloitte.com Rudy Morando works with mid-to-large businesses in strategic and investment advisory roles. He has
experience in crisis management, cash-flow management, debt restructurings, business sales, and wind-down
capacities across a variety of industries.
Industries: Mr. Morando is skilled in strategic planning and profitability assessments, having provided such services for a
● Advertising $150 million public electronics company and a similar-sized food manufacturer. He also has experience in financial analysis and
diligence, operational assessments & process improvements, working capital improvement, vendor management and stakeholder
● Electronics communications.
● Finance
● Manufacturing A few notable engagements include:

● Staffing ● Provided financial diligence for a $100 million brewery for potential investor
● Telecommunications
● Conducted business plan assessment for a $110 million printing company
● Prepared DCF analysis 200+ portfolio properties for a $500 million REIT company
● Led debt and operational restructuring of a $300 million staffing company
● Created cash management tools for a $100 million telecommunications company
● Developed 13-week cash flow for a $400 million ad placement company
● Developed 13-week cash flow and variance reporting for a $100 million jewelry manufacturer
● Produced inventory liquidation analysis for a toy company
Education: Previously, Mr. Morando worked for a leading global finance company where he provided financial advisory services to several
B.A., Northeastern University small businesses. He also served as a strategy analyst in the telecommunications sector and as an associate within an early-
stage venture capital business in Providence, Rhode Island.

Mr. Morando is a co-developer and instructor of ‘Cash is King’, Deloitte CRG’s training program on 13-week cash flow
development, and of ‘Three Statement Modeling’, the Deloitte FAS training program on integrated financial modeling. In addition,
he is a Certified Insolvency and Restructuring Advisor (CIRA), a Certified Turnaround Analyst (CTA), and a member of TMA
Global’s Certification Oversight Committee.
This biography may refer to client engagements performed prior to joining Deloitte Transactions and Business Analytics (“DTBA”) in the Deloitte Corporate Restructuring Group (“Deloitte CRG”).

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