Feature
T he tight-rope act that the U.S. economy’s performed over the last six months has presented a plethora of divergent indicators that have sown confusion, even among the most prescient economists. While a strong GDP rebound and solid consumer spending has provided the foundation for stability, the cooling labor market, persistent inflation and a struggling manufacturing sector have presented counterpoint challenges. The economic trajectory in the coming months will in all likelihood depend on the complex interplay of these competing forces and the policy decisions made in response to them. If you’re a business owner, with no prevailing notion of how to make sound decisions for the foreseeable future, it’s likely you’re not sleeping as well as you perhaps should be, and cold comfort lies in the unifying theme that the rest of corporate America is more or less in the same boat. The irony is that for a company to be resilient and adaptable in these economic times—it had to prepare to be, and a big part of the traditional foresight that good businesspeople maintain is a healthy, constant understanding of cashflow. Their business school DNA has taught them that cash to a company is like blood to a body—it needs to get where it’s going, when it needs to be there, or bad things start to happen. When Auburn legend Bo Jackson went down playing for the NFL Raiders it was a serious injury, but it was only later that doctors discovered the bigger issue—his miniscule, after-thought blood vessels were no longer delivering to his powerful left hip. And no matter how epic it was, Bo’s athletic career was over in a blink. Venerable U.S. retailer, W.T. Grant had an epic run of its own. Starting in 1907, it was a staple of the American economy for more than 50 years. In the 1960s an upstart competitor with a cool name, K-Mart, happened on the scene. W.T. Grant felt the rush of modernity passing it by and in response, began an
aggressive and unchecked expansion, building hundreds of stores as fast as they could. W.T. Grant hemorrhaged cash. Unfortunately, many of the new stores were hurried, ill-planned and didn’t attract customers. Desperate to boost sales, W.T. Grant added insult to injury by offering very easy credit terms—to pretty much anybody who walked through their doors. When their new customers couldn’t afford to pay for what they’d purchased, the arterial accounts receivable flow that the company had relied on for generations trickled to a drip, and with not enough cash in the coffers, W.T. Grant became what was at the time, the second largest bankruptcy in U.S. history. The company survived a great depression and two world wars, but when they nicked a finger on cash flow, much like Bo, a great run was over.
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Do today’s challenges demand greater innovation to make sure the lifeblood of a company continues to flow?”
For decades, cash flow forecasting has been the primary hedge against uncertainty. The quarterly and the long-term annual cash flow forecasts provided sufficient data that allowed the C-Suite to make informed, proactive decisions—and enjoy a better night’s sleep, resting assured that the traditional precautions have been made. But are the traditional precautions enough? Or do today’s challenges demand greater innovation to make sure the lifeblood of a company continues to flow? Once the province of large corporations, Artificial Intelligence tools are now widely available. These tools significantly enhance budgeting and cash flow forecasting and management by leveraging machine learning to analyze large datasets, identify hidden patterns and improve accuracy beyond traditional methods. The algorithms can sort through historical financial data, market trends, economic shifts and even weather
Harbert Magazine 43
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