A private equity backed software developer was in the process of integrating back office administrative functions of a recent acquisition and unexpectedly experienced a liquidity crunch. The company suddenly encountered negative cash positions and realized it was not able to effectively forecast its cash flows or predict availability under its asset based lending credit revolver within a reasonable range of accuracy. The disparate entity processes and systems along with rapid organic growth were straining the company’s ability to manage its cash management treasury function. Accordingly, the company routinely scrambled to meet day-to-day financial commitments.
In order to address the pressing liquidity issue, SBC worked with the company’s finance staff to compile detailed historical inflow and spending trackers to be used to construct a reliable rolling weekly cash flow forecast model. The model included forecasted credit line borrowing base calculations to determine if cash flow shortages could be covered by line availability. Using the insights gained from analysis of the updated forecasting tool allowed the company to rebalance the timing of its cash outlays, smoothing net cash flows and lessening the severity of the liquidity crunch. In addition to the actions to address the immediate liquidity issue, the company also formulated plans to address the longer term structural integrations issues and the unification of banking platforms. As a result of SBC’s experience in treasury management and cash management challenges, the company gained a clearer view of its daily liquidity position, allowing it to more nimbly manage its cash, and address future shortfalls well in advance of occurrence.