Time To Start Budgeting for 2009

Many Companies Report Flat or Deteriorating Working Capital

Only 37 percent of companies had a working capital improvement program in place during the past five years.Two-thirds (67 percent) of senior financial executives said their company's working capital is flat or has deteriorated as compared to three years ago, with little relief in sight, according to a global survey by KPMG LLP, the audit, tax and advisory firm . According to the survey, which polled more than 550 companies across the United States and Europe, 83 percent of executives said managing working capital was the highest or a high priority at their companies, yet only 37 percent of those surveyed had a working capital improvement program in place during the past five years. And of those respondents who did not have a working capital improvement program, 70 percent predict their working capital will stay the same or decrease. In addition to deficient working capital management programs, an overwhelming number of companies fail to produce reliable cash forecasts. Although almost all respondents (95 percent) report forecasting their cash flows, only 14 percent of respondents report achieving accurate forecasts in the last 12 months."In turbulent times, when access to credit is curtailed, effective cash and working capital management practices can be essential to stay competitive or simply afloat," said Brad Hillier, a managing director in KPMG LLP's Advisory Services practice. "There's no doubt that companies have heightened cash management concerns today as compared to just a few months ago. Companies that have a disciplined approach to cash and working capital management are in a better position to take advantage of opportunities available in a tumultuous market–such as making acquisitions or strategic investments."Addressing forecasting, Hillier noted that accurate forecasting is critical to effectively managing a business in a difficult economy. "Not only is forecasting a necessary tool for improving working capital performance, it is especially critical in times like these for making strategic business decisions," Hillier said. "Many companies do not gather the right data to produce accurate forecasts, nor do they have the right people involved in the process. In addition to improving the forecasting and reporting processes, executives should consider using other best practices, such as targeting metrics and establishing dashboards and controls that offer better visibility into cash performance."Despite the fact that studies have shown that the best performing businesses tend to be those that link working capital performance to managerial incentives, the KPMG survey found that almost a quarter of respondents (24 percent) had not correlated working capital with compensation.