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Issue 027

Cash Flow – Projected Balance Sheets – Forecast Modifications during the Year (Rolling Forecast) are all part of the PREDICTIVE ACCOUNTING PROCESS.

In Part Two of “Budgeting Is Important For Businesses, Charities And Not For Profits”  we comment on:

  • Will we have enough money?
  • Projected Balance Sheets – gives you an indication of what your business could look like in future years.
  • When there are changes, modifications need to be made – we suggest that these are reflected through “Rolling Forecasts” so that you don’t lose your original forecasts.

This is a common question from business operators which the Budget process sets out to explain.

The “Cash Flow Forecast” does not stand on its own – it is part of the “business financing story” which commences with the individual Budgets that are linked via the key drivers to the Cash Flow Forecast and the Balance Sheet. This whole process is referred to as “Predictive Accounting”.

The key items within the “Cash Flow Forecast” that are part of this process include:

  • Cash sales receipts
  • Payments by debtors
  • Creditors payments for raw materials, stock purchases, direct costs, overhead expenses, etc.
  • Salaries and wages and superannuation payments
  • PAYG payments
  • Company tax payments
  • Payroll tax and workers compensation
  • Insurance premiums
  • Loan repayments
  • Lease and hire purchase payments
  • Dividend payments
  • Research and Development activities
  • Receipt of government grant funds

The “Cash Flow Forecast” will indicate whether the business needs additional funding via loan funds or capital raising, but could also highlight that the Debtors’ Days Outstanding has blown out or that creditors are being paid faster than what was budgeted.

The daily bank balance is an important Key Performance Indicators (KPIs) that needs to be monitored, to ensure that the company’s overdraft facilities are appropriately managed, and that if any temporary assistance is required, a prompt application can be made to your bank.

The Predictive Accounting Process concludes with the “Projected Balance Sheet”. This process is normally prepared for a number of years in advance.

This process enables a “picture to emerge” of what your business will look like at a future date.

There are a lot of variables involved in analysing the future financial performance of a business, including estimates.  It is very reassuring for a business operator to be able to sit down and to analyse the Projected Balance Sheet, which will highlight what the end result will look like if you are able to implement the strategies outlined in the Budget estimates.

The “Projected Balance Sheet” is the projected financial result of the “scaling up process” over a number of years.  What is the forecast end result?  Are you happy with that result or would you like to make some changes?  Which, of course, you can do:

  • Expenditure on buildings and plant and equipment
  • Research and Development
  • Training program for your team
  • Higher number of team members
  • You probably will not know all of their names
  • Applying for government grants (you might not always be successful)
  • Applying for patents
  • Ever-increasing amounts owed by debtors
  • Higher inventory levels
  • Borrowing of additional funds
  • Possibly issue of additional shares in the company, meaning additional shareholders
  • Expectation that the business’ profitability will increase

The Projected Balance Sheet will show you what the effect of all these events are in five years’ time or later, so that you can decide whether it’s all going to be worthwhile and whether you want to continue down that path.

This is the real benefit of the “Projected Balance Sheets” within the Predictive Accounting Process.

Want to know more about this important information that a growing number of business operators are seeking – what will my business look like in the future?

Budgets should not be prepared and then put into a cupboard and forgotten about until next year because that is when you think that the Bank Manager might ask for a Budget or Cash Flow Forecast.

The “Predictive Accounting Reports” have been prepared to assist business operators to have a financial roadmap to work with day by day because you will have your own prescription of what the future will look like if you are able to implement the strategies that are outlined within the Budgets, Cash Flow Forecast and Projected Balance Sheets.

But we all know there is going to be some obstacles on the course – some things that might not have been thought about and other events that were not considered - we only have to think about recent events such as COVID, the Russian invasion of Ukraine, tensions rising in Asia, the shocking situation in Israel to realise that there are many events which can challenge the thinking that went into the preparation of the Budgets.

It is a good idea that you retain your original Budget for at least twelve months so you can continually observe where you might have been other than for the changes.

But for you to be reactive to the changes in the marketplace the document available for “scaling up businesses” is the “Rolling Forecast”.

A “Rolling Forecast” includes as much as possible from the original Budget but then shows the deviations that have been caused by events that your business had no control over and some of which may have been caused by omissions in the original Budget or underestimating the effect of various decision.

The use of the “Rolling Forecast” means that the monitoring process for the Budget activity should continue month by month during the year.  In this way your business will get the best benefit out of the investment of time and money that has gone into the preparation of your Budget Forecasts.

Managing Budgets and Cash Flows is an important part of the Predictive Accounting Process.  At Towers Business Development we advise businesses and other organisations on all aspects of the budget process.  If you would like to have a no obligation initial conversation please do not hesitate to contact us on 1800 232 088 or send us an email: and we will organise a Zoom meeting with you.

Stay safe!