Continuous Planning Meets Continuous Accounting

Continuous Planning Meets Continuous Accounting

This is a transcript of a video discussion between Jim French, CFO of IFI Professionals and Darren Devine, VP Finance of Cypress Creek Renewables.

- [Jim] I mean, I know when we started out this journey about five years ago, our focus was really to drive a continuous business cycle, and how that you can go from a planning phase to an execution phase, to a monitoring phase, and then ultimately to an analyzing phase, and then that cycle would start again, right? So that you're continually planning and you're continually driving that business. And that became kind of where we were driving on a journey together. So let's talk a little bit about some of those different stages, and some of the different elements that feed into Cypress Creek's business.

- [Darren] Yeah. So when we think about planning, for example, we do a development project, it could take up to two years. So the planning for it has to be well documented, it has to have timelines, it's gotta have a budget put in place. We've got to think about, "Hey is this gonna be a buy or a sell transaction?" Because if we're gonna sell it, that means that the present value of the cash flows that work calculating are less than what an external customer is gonna pay for us. And there's varying types of inflows and outflows. So when you go through a development, you're gonna have a lot of outflows at the beginning as you start working with your utility provider to establish what we call an interconnection. So we just wanna be able to plug into the grid. So for us is a lot of outflows, the business right now is managing about 3000 payments a month, over these 400 entities. But then the inflows that come in, they could be right away, they could be delayed, and it's all dependent on who's putting out the cash flows now? Are they reimbursable? Is there contingent milestones you have to hit? Like in construction you gotta be hitting continuous milestones in order to get paid to come back in. So all that has to be planned for. I might have a baby crying back down here, so I apologize. But all these have to be planned for to make sure that our liquidity is sufficient. Because we'll be talking about, you got $100 or $200 million project, and you're not managing your liquidity, well, then you're gonna run into other problems. So the planning phase for all this is really important to make sure the operational timelines are hit, so you execute on your financial deliverables being your inflows and your outflows. Just kind of pause there on planning. Any questions on planning there, Jim?

- [Jim] Yeah, I think the planning, I mean, like I said, is you're planning out for a long distance, right? And you're planning where those on-ramps and off-ramps, and as you go through that execution process, as you're going and actually building these out, there's a lot of decisions that's being made. There's a lot of schedules and projects that are being managed. So let's talk a little bit about how you executed and how we've actually tied some of your monitoring activities, right? We call it monitoring. It's almost like the accounting phase, right? Capturing the data and ensuring that we're capturing information that's gonna tell us a story about your business. So let's talk a little bit about execution and monitor together, and tell us some of the pieces that go on, right? I mean, one of the big things is project schedules. Why don't we talk a little bit about that?

- [Darren] Yeah. So our project schedules can be anywhere from 300 to 2000 line items, which at the time, right now, we're using Smartsheets. We're moving into different pieces of software which we're gonna get into a little later. But our big thing is to get the schedule put in place, so that everybody knows what they need to do, and when they need to do it. When payments have to be pushed out, we wanna make sure that those payments are authorized in advance. So we use purchase orders to make sure that they're authorized, not only just to eliminate or minimize fraud and error, but also so that we can forecast and plan what our cash flows are gonna be, 'cause when you start off and you have a cashflow that you think is gonna come up for a million bucks on March 15th, well, when you actually place the purchase order, it could be a different number. So we really like to have everything in an electronic format. And then it helps us finance our projects, because for us, we're not gonna use our money to build the projects, we're gonna finance those. So when we go to counter parties, they need to make sure that they see our project schedules, that they see our backup with our purchase orders, so that they're able to finance our projects because they can see where the cash flows are going. That also leads us to like, "Hey, well what is the present value of the cash flows?" Because we need to know if we're gonna keep this project and retain it over 30 to 40 years, or we're gonna sell it because someone's willing to offer us more money than what we're valuing that project at. And then there's all the projects are gonna die.

- [Jim] And I think, Darren, that actually brings in a good segue into that last step, right? This is where you're doing a constant analyze that says, "Where are we on that journey? Is it time to buy, is it time to sell? Do we need to adjust our plan? What are the results? What's our budget at actual?" And then you ultimately are starting that process again, and so that ultimately is what we kind of looked at as a continual plan. Is that kind of an accurate statement?

- [Darren]It is, and from the monitoring function there which we can kind of get into here is, we're constantly running reports. What are the inflows and outflows? When we pull down what we call an anticipated final cost to build a project. It could be constantly moving and needs to be updated. So one day you might think that the project is gonna take $100 million dollars, and then the next day you go up to 110. Well, that $10 million can erode your profit pretty easily, and so we need to be able to monitor it through reporting and with our purchase orders, we're able to see how much we have outstanding, in what we call commitments, which is, needs to be paid, and then remaining commits, which is, what still has to be paid. So for the monitoring components comes out in our financial reporting on cash flows, on our margins and then just what we owed to suppliers, what we've paid the suppliers, and what's still left to be booked into the system.

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