Monitoring your cash flow budget This is comparing your actual results to the cashflow budget. By not changing the budget we can now identify the major differences between what we planned and what actually happened. To give context to overall performance first consider the bottom line cash movement, then sub-totals before looking at individual line items. Key subtotals are: revenue, variable costs, gross margin and Step 1 Look at the overheads in total and by enterprise. – forest before the trees on the year to date results before moving to the monthly results – this helps eliminate any variances caused by timing. Do the figures right’ given your knowledge of the farm’s ‘feel operations? If not there may be some data errors. Start by identifying both favourable and unfavourable variances. Set limits in terms of dollars and % variances that will trigger further investigation and corrective actions (e.g. $1000 and 10%). Step 2 Highlight – Identify any positive or negative trends over several months. material variances Beware of any issues that are not showing up in the figures yet ‘hidden’ (e.g. bills still outstanding, delays that are making the budget appear better than it actually is). Is the variance caused by what you know has happened? Are your budget assumptions incorrect? Step 3 Identify Has any unexpected event happened? – material variances Is there a mistake in the budget? Is it a matter of timing? Is it underperformance? Identify the root cause of performance variances: brainstorm, consult, use the why’s’ technique Step 4 Analyse ‘5 – material variances Make plans to continue any positive variances Make plans to address any negative variances Do not change the budget to match performance. Quantity changes - more, better, less, same Quality changes - different, better, worse Maximize revenue - volumes, sales mix, getting the best prices. Step 5 Take – Minimize waste - getting the timing right, match supply with demand, corrective action avoid costly mistakes, optimise your resources, improve logistics. Improve cashflow - use credit terms, structure borrowings, review owner’s drawings, sell excess assets, defer asset purchases. Contingency plans: diversification, hire/lease, outsourcing, new technology. Step 6 Follow up – Make sure action plans to address performance are acted on.
Monitoring your cash flow budget This is comparing your actual results to the cashflow budget. By not changing the budget we can now identify the major differences between what we planned and what actually happened. Step 1 – Look at the forest before the trees To give context to overall performance first consider the bottom line cash movement, then sub-totals before looking at individual line items. Key subtotals are: revenue, variable costs, gross margin and overheads in total and by enterprise. on the year to date results before moving to the monthly results – this helps eliminate any variances caused by timing. Do the figures ‘feel right’ given your knowledge of the farm’s operations? If not there may be some data errors. Step 2 – Highlight material variances Start by identifying both favourable and unfavourable variances. Set limits in terms of dollars and % variances that will trigger further investigation and corrective actions (e.g. $1000 and 10%). Identify any positive or negative trends over several months. Beware of any ‘hidden’ issues that are not showing up in the figures yet (e.g. bills still outstanding, delays that are making the budget appear better than it actually is). Step 3 – Identify material variances Is the variance caused by what you know has happened? Are your budget assumptions incorrect? Has any unexpected event happened? Is there a mistake in the budget? Is it a matter of timing? Is it underperformance? Step 4 – Analyse material variances Identify the root cause of performance variances: brainstorm, consult, use the ‘5 why’s’ technique Make plans to continue any positive variances Make plans to address any negative variances Step 5 – Take corrective action Do not change the budget to match performance. Quantity changes - more, better, less, same Quality changes - different, better, worse Maximize revenue - volumes, sales mix, getting the best prices. Minimize waste - getting the timing right, match supply with demand, avoid costly mistakes, optimise your resources, improve logistics. Improve cashflow - use credit terms, structure borrowings, review owner’s drawings, sell excess assets, defer asset purchases. Contingency plans: diversification, hire/lease, outsourcing, new technology. Step 6 – Follow up Make sure action plans to address performance are acted on.