Managing Cash Flow

Cash Flow Reporting and Controls 293
having to reinvent the projection methodology, the company has merely
to look at the prior method of calculation of any line item, review it to
ensure that it still makes sense, and apply the same process to the new
forecast. If there is a better way to prepare the calculation, that should be
done and an adjustment made to the assumptions for the next round.
CASH FLOW REPORTING AND CONTROLS
Once a relevant and effective system of cash flow planning has been developed,
the reporting of the actual cash flows should follow naturally. The actual results
come from the accounting system. There is no magic or particular difficulty to this
process. It is only a matter of recording actual cash flows, summarizing them in a
format consistent with the planning system, and reporting them accordingly. The
same format should be used to report actual cash flows as is used for the projections
so that appropriate comparisons of actual to projections can be made. These
actual reports should be prepared at least as frequently as the projections—in
some cases more frequently.
Cash Flow Reporting
While it is not always necessary to formally compare weekly actual figures to
plan, monthly reports of actual cash flows are desirable. If projections are made
on a quarterly basis, the monthly actual results can be compared to one third of
the projections to get an idea of the accuracy of the projections. If projections are
made on a monthly basis, the actual cash flows can, of course, be compared
directly. Either way, the comparison should include a calculation of the differences
between projections and actuals, and significant variances need to be investigated
and explained. At this point it will be too late to do anything about the
variance already incurred, but understanding why and how it occurred can be
useful in improving future projections and bringing unacceptable practices
under control.
CASH FLOW CONTROL:
1. SET THE STANDARD.
2. MEASURE PERFORMANCE.
3. EVALUATE PERFORMANCE.
4. REACT APPROPRIATELY.