Why Doesn’t My Forecast Data Match Up With My Bank Account?

Posted 03 March by Barb Easter in Accounting, Budget, Cash Flow, Entrepreneur, Small Business

Viewing your actual bank balance alongside your Dryrun cash flow forecast and budget can help you visualize exactly how much cash you have on hand right now. Unfortunately, it can give you a false sense of where you really are cash flow-wise.

You’ll often notice that the dollar amount in Dryrun, or really any forecast for that matter, differs from your bank balance, and that’s ok. It can be difficult to reconcile the two numbers so that they match exactly from day to day and relying on your bank balance can even be a dangerous practice. Here’s why:

When Your Bank Balance is Out of Sync with Dryrun’s Forecast – A Simplified Example

You have $2,000 in your bank account

Office rent of $1,500 is due in two days; from first glance it looks like you are in good shape to end the transaction with a $500 surplus in your account after meeting this expense – however:

You also have an $1,100 credit card bill due in five days.

Your internet service provider automatically withdraws your $200 payment in 10 days.

Without any further deposits to your account, the credit card payment will overdraw your account within 5 days and a second default payment will occur within 10 days. To avoid this, you need at least $800 cash inflow over the next 10 days.

Last month, you invoiced a customer for $1,200 but you’re unsure of when the money will arrive in your bank account.

Will it come in within the next 5 days so that you can pay all of your bills? What happens if the customer doesn’t abide by net 30 payment terms as you outlined on the invoice, but instead opts to incur a late fee from you?

It may sting them a little, but whatever payment penalty you enact won’t solve your cash flow problem if the receivable is overdue for payment.

Analysis

While this is a simple example of the obstacles that can block getting paid on time and therefore being able to pay your bills on time, most businesses manage a much more complex set of inflows and outflows. Complexity makes the account balance difficult to predict, and your ability to clearly map an order of events is impaired.

In fact, the ability to act on an opportunity that may occur during the shortfall phase is impaired as well. Even in the simplest situations, it’s difficult to remember the exact details of all your cash flow, payables and receivables.

Addressing Discrepancies Between Your Bank and Dryrun: Common Issues

So what is the best way to ensure your bank balance and Dryrun remain roughly in sync? Discrepancies generally occur when:
You have paid bills or invoices with bank funds, but the payments haven’t been posted yet.

You’ve cut a cheque which is immediately deducted from your books, but hasn’t posted to your bank account yet.
Repeating budget items you’ve entered into Dryrun have an actual pay date that differs from your bank’s practices. For instance, some of your expenses may be paid on a credit card and that amount is estimated in your repeating budget, but in reality you pay the entire credit card bill the following month.

Addressing Discrepancies Between Your Bank and Dryrun: Common Fixes

Taking note of the balance at month-start from your bank account to use in Dryrun will help reduce discrepancies and minimize the work required to keep everything accurate.

Manually adjusting the timing of some of the larger payables and receivables should result in a closer match between your account and Dryrun. Knowing that your AP department routinely pays the company credit card on the 15th of every month means that adjusting the recurring payments in Dryrun to reflect the 15th of the month is a safer bet for accuracy between your balance and Dryrun.

With all the information above, it’s important to note that Dryrun is best used with an overall picture in mind of how you want your business to grow, and how you plan to tackle potential shortfalls to avoid spiralling losses. Forecasting in this way is unlikely to be penny perfect, however the information you do receive is far-reaching and absolutely critical.

If you regularly find that your bank balance is vastly different from your Forecasts, change the scope of how you use Dryrun, then reevaluate when your situation stabilizes:

If you have an adequate cash flow buffer: Consider narrowing your focus to core issues like sales forecasting or invoice tracking

If you’re working to prevent a cash flow crunch: consider updating Dryrun more frequently, and work to accurately predict when cheques, direct withdrawals, and cash will actually leave your account. A short fact-finding mission to find out how long it takes the average cheque to clear, and how much time the credit card charges take to post and then pay can be well worth the time you invest in discovering these details.

Remember – attempting to match your forecast with your bank balance precisely is often not worth the time it takes to make it so, and can even be misleading.

Dryrun’s strength lies in helping you to track key payables and receivables so that you can avoid crisis, while also providing direction so that you can make decisions that drive your business forward and help you grow. A forecast, while never penny-perfect, gives you the data and guidance you need to be proactive and make informed decisions.

Learn more about Dryrun and how it can help you prepare for growth, manage your cash flow, and evaluate your business options.

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