Hoosier Banker 37 using transaction-level data. As it relates to recovery planning, the first step is to construct a dynamic 13-week cash flow roller to identify critical liquidity gaps. The cash flow model should include multiple discrete data sources, which feed into the model, so the uncertainty regarding the timing and amount of various cash flows can be evaluated. The second tool we advise building is a bottom-up unit level economic model. The purpose of the economic model is to analyze the two largest unknown dynamics affecting profit variability: the effect of changes to your volume and mix. This model has several components, including a unit level sales and margin model, which looks at contribution margins by different segments of the business (such as customer, item, product line or business unit) and effects of planned cost-saving initiatives, and then feeds into projection tools to forecast changes in mix and product volume on a longer-term basis. 3. Realign operating models and business strategies. While the bottom-up economic model is built to evaluate changes in the business, it is also critical to evaluate changes to the business. This may include assumptions about economic recovery or additional regulation. Nonetheless, we advise lenders to help borrowers identify specific drivers of change to evaluate the impact on future profitability. As operating models change and are realigned to new business strategies, risk profiles will change, too. The lender who is involved at this level should be able to not only better assess risk but also identify opportunity. Right now, every lender is faced with opportunity. Those who are proactive in the financial recovery planning process will serve their customers well – not just for the next few months, but for many years to come. HB TALENT GATHERS HERE Hiring quality employees has never been so easy! BankTalentHQ.com FIND THE NEW ADDITION TO YOUR TEAM TODAY! This article is for general information purposes only and is not to be considered as legal advice. This information was written by qualified, experienced BKD professionals, but applying this information to your particular situation requires careful consideration of your specific facts and circumstances. Consult your advisor or legal counsel before acting on any matter covered in this update. Article reprinted with permission from BKD CPAs & Advisors, bkd.com. All rights reserved.
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