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Bridging - Fundamentals

What It Is (General)

Bridging in treasury refers to the reconciliation process that explains the variance between direct cash flow forecasts (transaction-based, showing actual cash movements) and indirect cash flow forecasts (derived from accrual-based P&L budgets and balance sheet changes). The goal is to identify and categorize the drivers of any differences, typically working capital movements, timing differences, or forecast errors.

What It Means for Our ICP

How Treasury Teams Think About It

Treasury teams view bridging as the essential "translation layer" between their operational cash reality and the financial planning world. They need to answer questions like: "We budgeted X EBITDA, but our cash position is Y—why?"

The core mental model involves: 1. Starting with indirect forecast (budget EBITDA) 2. Adjusting for non-cash items 3. Adding/subtracting working capital movements (AR, AP changes) 4. Layering in interest, capex, treasury items 5. Arriving at a number that should match direct cash flows

Euroports' Process (Source: 2025-10-27) 1. Classify direct cash flows from bank transactions 2. Assign GL accounts based on budget structure 3. Aggregate in Excel 4. Compare to budget EBITDA 5. Derive working capital movement as the "plug"

Typical Processes & Timing

  • Frequency: Bi-weekly bridging analysis is common for active treasury teams
  • Timing: Often aligned with management reporting cycles
  • Challenges: ERP bookings only updated monthly, making within-month bridging difficult

Tools They Use Today

  • Cash Analytics - TMS for transaction data, but lacks drill-down and variance analysis (Mentioned by: Euroports)
  • Excel - Primary tool for actual bridging calculations and variance analysis (Mentioned by: Euroports)
  • ERP systems - Source of GL/budget data, but often updated too infrequently

How They Talk About It

  • "Bridging direct vs indirect" - the core activity
  • "Variance drivers" - what they're trying to identify
  • "Working capital movement" - often the largest unexplained variance bucket
  • "Pollution of categories" - when classification errors corrupt reporting
  • "Deviation from budget" - the gap they need to explain
  • "Reporting hub" - desired centralized place for all variance analysis (Personio)
  • "GFC" (Rolling Forecast) - monthly updated forecast more accurate than static budget (Personio)
  • "Operating vs Non-Operating" - FP&A split not replicable from bank statements (Personio)
  • "Cash Engine" - FP&A revenue model with assumptions and seasonality (Personio)
  • "T+1 analysis" - first-day-of-month cash burn reporting (Personio)

"We want to know the deviation of the short term forecast versus the budget... I want to understand the drivers." - Matthias, Euroports

"What I'm aiming to achieve is being able to use the system as like, a true reporting hub." - Tom Thorn, Personio

"There's the actual versus direct forecast, there's the actual versus indirect forecast, and then there's the forecast versus forecast." - Tom Thorn, Personio

Personio's Process (Source: 2025-12-04) 1. Receive FP&A monthly budget/GFC numbers 2. Manually split into weekly transactional forecasts 3. Compare three variance points: actuals vs direct, actuals vs FP&A, forecast vs forecast 4. Flag significant variances and investigate 5. Feed back explanations to FP&A team

FP&A-Treasury Relationship

Levi's Perspective (Source: 2025-12-11) - Cadence difference: FP&A refreshes annually/quarterly, Treasury refreshes weekly - Permanent vs timing differences: Track which variances are timing (will resolve) vs permanent (need explanation) - Who knows first: Treasury often knows real numbers before FP&A (e.g., acquisition costs, disruptions) - Working capital hedge: FP&A maintains a "cushion" or range; Treasury feeds information to calibrate it - Acquisitions example: "Once negotiations are on the table, I have a better number. They need to follow my number." - Information = success: "We usually are very successful in achieving the goal because of that information."

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