In our previous article in this series we discussed the practical steps needed to prepare budgets and cashflow forecasts. In this final part we will focus more on the review and analysis of your reports – understanding the end result.

At its simplest, the review of a budget comes down to comparing your predicted result, the budget, with what really happened, the actuals. There are, however, many ways to make that analysis more complex!

Getting the Timing Right

The first issue we have is timing; over what period should we compare budgets to actuals? Sometimes it’s the current month that’s important (or more commonly the one just completed) – how well did we do this month? Focusing on one month is important when you need to be close to the detail of what’s happening and on the lookout for changes – it enables you to identify and react quickly to falls in revenue or increases in costs.

 

Long-term and Year-to-Date Comparison

At the CEO or Board level the focus is more on the longer-term and this is when year-to-date comparisons become much more useful. This eliminates the monthly fluctuations and enables you to pay attention to the big picture. You may have budgeted for a major expense in February, for example, but if it was delayed and didn’t happen till March, this wouldn’t affect the year-to-date results.

 

Re-forecast Unspent Budgets

In many Not-for-Profits there is often a requirement to focus on the full annual budget (or sometimes an even longer period), especially when a project is grant-funded. The funding provider may have strict rules on what can and can’t be done with surplus funds or what happens if there is a deficit. Calxa’s Budget Summary (Unspent) report is a convenient way to compare budgets for the month, year-to-date and the full year, conveniently viewable on one page, while the Re-forecast Unspent Budget Spreadsheet will recalculate what can be spent each month in order to meet the full year’s budget.

 

Comparing Budgets to Actuals

Comparing budgets to actuals should be done as a learning tool – it’s not (usually) a good tool for berating staff for excessive expenditure, there are better ways of managing that. What it will do is alert you to problems with your budgeting process or to changes in the business. If your electricity expenses are constantly over budget is this because of some problem with a change in usage (which should be investigated and fixed) or is it because of inaccurate estimates (or incomplete knowledge) in the original budget? If the latter, maybe your current forecast should be adjusted in light of the new, improved information so you’re not reporting the same variances each month.

 

Monthly Cash Flow Forecasts

Your bank balance at the end of each month is the best measure of accuracy for your cashflow forecast. However, remember that one of the uses of a cashflow forecast is to encourage you to modify your behaviour so that a negative outcome is avoided. If I’m forecasting a deficit in three months’ time, I’ll change what I do in my business now. For example:

  • Work to increase revenue
  • Reduce or defer costs
  • Worst case scenario, bring in additional funds

 

The end result will be a better outcome than the projected forecast.

 

KPI Analysis

To compare your cashflow forecast to actuals in Calxa, the best way is to create a custom KPI that includes the closing balance of your bank account(s) and then map that with the KPI Analysis Chart. The budget will display what was forecast at the beginning of the financial year and you can see how well you have improved on that.

KPI Analysis Line Chart

 

Use your budgets and cashflow forecasts wisely, review them regularly and you’ll improve your knowledge and understanding of your organisation to achieve a positive outcome.

Check out some of the reports you can create with Calxa.