Key drivers are the links in the budgeting process

The Predictive Accounting Process comprises budgets, cash flow forecasts, projected balance sheets and key drivers.

The “Key Drivers” are the key components in the budgeting process. To prepare accurate financial projections, key driver subaccounts are needed.

Some of the common key drivers are as follows:

Raw materials inventory: shows the purchases of raw materials, less the usage in manufacturing and the forecast quantity on hand and the value at any time. These figures need to be reviewed to ensure that sufficient quantity of raw materials are being purchased, that the quantity held will suffice any shipping delays but excess quantities are not being held, because this will have a detrimental cash flow effect.

Completed stock: shows the completed stock from the manufacturing process or direct purchases, less the quantity of sales, to determine stock on hand quantity and the value. These figures need to be reviewed to ensure that, based on the firm’s budgeted sales, there is going to be sufficient stock on hand to meet customer requirements. Conversely, care needs to be taken to ensure that there has not been over investment in completed stock because this will affect cash flow.

Debtors: shows the sales made and the amount of cash received during a month in payment of debtors accounts. The closing balance needs to be reviewed to check what the “debtors days outstanding” will be. If the “debtors days outstanding” is too low, it will mean that the cash flow forecast might indicate that the business has plenty of funds available when in fact, this might not be the case.

These are some of the examples of the “Key Drivers” which in the Predictive Accounting Process are the links to the budgets, cash flow forecasts and projected balance sheets.

If you are interested in having a discussion on how to implement a “Budget Strategy” for your business, please do not hesitate to contact Peter Towers, Managing Director of Towers Business Development, on 1800 232 088 or .