How it is done
Before rolling the forecast forward, save last week's forecast and set it beside the actual bank activity. For each line over your threshold, sort the difference into one of three kinds:
- Timing: it will still happen, just in a different week. Move it.
- Permanent: it won't happen, or the amount changed. Adjust or remove it.
- Missed: something nobody forecast. Add it, and add it to the recurring list if it will come back.
Worked example
Opening cash for the week: $60,000.
| Forecast | Actual | Difference | |
|---|---|---|---|
| Receipts | $50,000 | $41,000 | -$9,000 |
| Payments | $44,000 | $47,500 | +$3,500 |
| Closing cash | $66,000 | $53,500 | -$12,500 |
The $9,000 shortfall in receipts is a $7,000 customer payment that slipped a week (timing) and a $2,000 credit note (permanent). The extra $3,500 of payments is an annual software renewal nobody forecast (missed). $9,000 + $3,500 = $12,500, the whole gap in closing cash.
Common mistakes
- Overwriting the old forecast. Without it there is nothing to compare.
- Netting differences. A $5,000 late receipt and a $5,000 missed payment cancel on the total but are two separate problems.
- Not fixing the cause. If a renewal was missed once, add it to the recurring items so it isn't missed next year.
- Only explaining shortfalls. Pleasant surprises often reverse next week.
Related terms
- 13-week cash flow forecast: A 13-week cash flow forecast is a week-by-week projection of the cash coming in and going out of a business over the next quarter, starting from today's bank balance.
- Variance analysis: Variance analysis is the process of comparing actual results with a budget, forecast or prior period, measuring the difference and explaining why it happened.
- Cash runway: Cash runway is how long a business can keep operating before it runs out of cash if nothing changes.
Further reading
- Forecast vs actual: the weekly cash forecast update
- How to build a 13-week cash flow forecast
- 13-Week Cash Forecast: the nvisin tool built around this