Working Data skill
Stress test a cash flow model
Stress-test a cash-flow model with combined operational, financing, timing, and liquidity shocks plus actionable thresholds.
Find the conditions that break liquidity and the lead time available to respond.
When to use
- Use for treasury planning, board review, lender discussions, growth decisions, or contingency preparation.
- Do not invent scenario probabilities or treat model outputs as guaranteed outcomes.
Preconditions
- Reconcile opening cash, restricted cash, debt, receivables, payables, and forecast sources.
- Confirm minimum operating cash, payment priorities, covenant definitions, commitments, and decision authority.
Procedure
- Validate the base model's opening balances, receipt and payment formulas, timing, currencies, and closing-cash roll-forward.
- Identify material drivers such as sales, collection timing, churn, margin, payroll, inventory, tax, capital spending, rates, and foreign exchange.
- Build plausible individual and combined shocks with documented magnitude, duration, onset, and recovery.
- Include second-order effects such as lost discounts, supplier restrictions, customer refunds, covenant pricing, and remediation cost.
- Calculate minimum cash, breach date, runway, funding need, covenant headroom, and recovery time.
- Run reverse stress tests to find the smallest combined change that breaches a critical threshold.
- Map preventive and contingent actions with cash effect, approval, dependency, delay, reversibility, and stakeholder impact.
- Protect payroll, tax, customer funds, legal obligations, and critical services within authorized priority rules.
- Compare actual results with scenario triggers and update assumptions through change control.
Worked example
A base case shows nine months of runway. A combined scenario applies slower collections, a supplier deposit, and a rate increase. Runway falls to four months and a covenant breaches earlier. Reverse stress testing identifies the collection delay that crosses minimum cash, while the action plan distinguishes immediate expense controls from financing that needs eight weeks.
--- name: stress-test-a-cash-flow-model category: data description: Stress-test a cash-flow model with combined operational, financing, timing, and liquidity shocks plus actionable thresholds. Use when evaluating runway, resilience, covenants, or contingency funding. --- # stress-test-a-cash-flow-model Find the conditions that break liquidity and the lead time available to respond. ## When to use - Use for treasury planning, board review, lender discussions, growth decisions, or contingency preparation. - Do not invent scenario probabilities or treat model outputs as guaranteed outcomes. ## Preconditions - Reconcile opening cash, restricted cash, debt, receivables, payables, and forecast sources. - Confirm minimum operating cash, payment priorities, covenant definitions, commitments, and decision authority. ## Procedure 1. Validate the base model's opening balances, receipt and payment formulas, timing, currencies, and closing-cash roll-forward. 2. Identify material drivers such as sales, collection timing, churn, margin, payroll, inventory, tax, capital spending, rates, and foreign exchange. 3. Build plausible individual and combined shocks with documented magnitude, duration, onset, and recovery. 4. Include second-order effects such as lost discounts, supplier restrictions, customer refunds, covenant pricing, and remediation cost. 5. Calculate minimum cash, breach date, runway, funding need, covenant headroom, and recovery time. 6. Run reverse stress tests to find the smallest combined change that breaches a critical threshold. 7. Map preventive and contingent actions with cash effect, approval, dependency, delay, reversibility, and stakeholder impact. 8. Protect payroll, tax, customer funds, legal obligations, and critical services within authorized priority rules. 9. Compare actual results with scenario triggers and update assumptions through change control. ## Worked example A base case shows nine months of runway. A combined scenario applies slower collections, a supplier deposit, and a rate increase. Runway falls to four months and a covenant breaches earlier. Reverse stress testing identifies the collection delay that crosses minimum cash, while the action plan distinguishes immediate expense controls from financing that needs eight weeks. ## Done - A stress-test model reconciles base cash and records combined shocks, second-order effects, breach points, reverse tests, and assumptions - A response plan lists verified thresholds, action values, permissions, lead times, protections, owners, and monitoring triggers