What use is the best plan if it has been finely filed on the drive and is dozing away there? In order to use a plan efficiently, it must be constantly monitored (controlling) and also revised (rolling planning). This is especially true if your company is growing and you plan to move into new areas (products, customers, distribution channels, etc.).
Financial plan vs. Cash flow plan
We are entrepreneurs and love pragmatic and simple solutions. That's why this is not a theoretical variation. (Even Wikipedia has its problems here and equates the two, true: Wikipedia). But: While we believe that a financial plan mainly has external recipients, the Cash flow plan is a must-have for entrepreneurs. "Because without cash, companies fail."
Controlling
Weekly or monthly controlling allows you to identify deviations in time and gives you time to react. Two main areas to consider are incoming and outgoing payments.
The reasons for the deviation from actual incoming and outgoing payments always follow the same pattern.
- Is this a "real" deviation or merely a time shift in the receipt of payment compared to the plan assumption?
- In the event of a genuine deviation, a brief analysis of the reasons for failure - e.g. lower sales volumes, underperforming products, over-ambitious assumptions or late implementation - should be established - preferably directly with the responsible person
The analysis of these deviations helps you to set future budgets more precisely and also enables you to take action if necessary. Especially in combination with a ...
Rolling Cash flow planning (or cash flow planning)
By using rolling planning, you can continuously monitor the goals you originally set and - based on facts - revise them if necessary. What sounds so simple now (and super necessary), is in practice really tedious to create but above all to maintain and keep up-to-date. (Self-promotion: one of the reasons why we developed COMMITLY)
In our view, there are two points to bear in mind. The Cash flow planning must always be kept up to date and no budgets must be "forgotten".
You can always achieve up-to-date planning by assigning an employee who regularly monitors the bank accounts and brings them together in a planning tool of some kind. Be it in Excel or in your ERP. While another approach chosen is also "I have a feeling about this", this approach is STRONGLY discouraged. The most important point, however, is that if something does happen, as a managing director you are quickly in "gross negligence" and thus in insolvency delay (= criminal law).
And what is this about forgetting budgets?
You have planned a turnover of 10,000 in one month, but only 8,000 come in. The responsible employee assures you that the 2,000 will come at a later date. In a simple target/actual comparison, this information is a comment. With rolling planning, the future budget must be adjusted by the 2,000. This applies not only to incoming payments but especially to outgoing payments. Since a Cash flow planning should always be conservative, positive deviations in payments should be carried forward to the next months in case of doubt. This means that it is assumed that the costs "saved" in that month will still be incurred at a later date.
Ideally, these costs will not arise and you will have built up a liquidity reserve. And nothing is more pleasant than having a small buffer!
Credits: Photo by Franz Harvin Aceituna on Unsplash