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Cash Flow Tracking: Actuals vs. Forecast

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Last editedMay 20222 min read

With business budgeting, there’s always a certain amount of guesswork involved. This is especially true for businesses in the fledgling stages who don’t have a lot of historical financial data to use to inform future projections.

However all businesses will experience some variation between their cash flow predictions and reality, due to unforeseen circumstances and general market fluctuation. This is why an actual vs. forecast comparison can help businesses understand their financial performance, allowing them to adjust their budgeting strategy accordingly.

What is forecast cash flow?

A forecast cash flow consists of sales and turnover projections. These are usually calculated when a business launches and at the beginning of each financial year. However, some businesses may opt to forecast at periodical intervals during the year.

It’s advisable that businesses review their forecasts whenever significant changes arise in the market or whenever there are shifts in leadership or alterations to key staff within business.

What is actual cash flow?

Actual cash flow refers to the money going in and out of a business. While forecast cash flow is a prediction based on calculations, actual cash flow is based on real figures and revenue streams and not dependent on any guess work.

Actual cash flow consists of both a company’s income and expenses, so it can provide a clear and reliable picture of a business’ financial position.

Actual cash flow is usually calculated at the end of each financial quarter and the end of the financial year. However, reviews can be carried out anytime business owners feel it is necessary.

What are the benefits of an actual vs. forecast comparison?

Cash flow tracking is essential for gauging the financial standing of a company. Comparing forecast vs actuals can also tell you whether or not a business is on track to reach its financial goals. While it’s rare that actual numbers will be a close reflection of forecasted ones, significant differences can indicate that the forecasting wasn’t based on accurate information. This is not always due to incompetency, however, but can simply be due to a drastically altered market, inflation or other unforeseeable events.

Where actuals vary significantly from forecasts, and this cannot be accounted for by external market changes, financial teams need to reassess their forecasting strategies to help make them more accurate. In the case that actual exceeds forecast, on the other hand, businesses may want to look into expanding their investment opportunities.

Comparing actual vs. forecast can therefore inform your forecasting strategy, help you budget your finances and help you plan more efficiently towards meeting your goals.

What should you include in an actual vs. forecast comparison?

The metrics and factors you should include in your actual vs forecast comparison will vary according to the information you’re hoping to gauge from it. However, the most common figures include costs and expenses, or, put in simpler terms, cash in and cash out. Stock turnover is also often looked at in order to highlight sales estimations.

Creating a forecast vs. actual Excel template

When it comes to creating a forecast vs. actual template, Microsoft Excel is a popular option. This is because it comes with inbuilt functions that can help do a great deal of the analysis and calculations for you. In fact, Excel comes with example templates created by agencies for the exact purpose of cash flow tracking and comparing planned vs. forecast vs. actual cash flow.

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