Issues to consider

While the recession appears to have bottomed out, companies may be facing difficult business conditions over the next 12 to 18 months. After a first round of cost reduction and cash saving efforts, companies — even the strong ones — face prospects of a second round of liquidity-raising measures because of the prolonged decline in consumer and business demand. Companies are realizing that forecasting practices that were sufficient in good times may not be robust enough in times of tight cash availability.

Key drivers

  • Fragile credit markets and expensive financing
  • Suppliers are monitoring credit risk and customers are extending terms/delaying payments
  • Continued high levels of unemployment
  • Weak housing market
  • Prolonged decline in consumer demand
  • Increased connectedness of global economy
  • Volatile energy and commodity prices and currency fluctuations
  • Rising costs but limited pricing power due to globalization and intense competition
  • Weak investor confidence

What you should be considering

  • Do you have timely, accurate cash-forecast information and are you able to reconcile short, medium and long-term forecasts?
  • Do you understand performance drivers that can lead to forecast risks?
  • Do you have access to sufficient sources of capital?
  • Have you taken steps to drive working capital efficiency?
  • Have you reviewed your global tax position and related minimization options?
  • Do you understand cost drivers and do you have sound linkages between operating plans and financial plans and budgets?
  • Are you able to identify investments that may no longer achieve their financial objectives?
  • Have you analyzed commercial transaction, financial counterparty and supply chain credit exposure?