When actual cash differs from the forecast, explain the difference before changing the model. A late customer payment, an unexpected cost, and a duplicate transaction can produce similar-looking shortfalls but require different actions.
A useful variance review connects the missing cash to evidence, a revised assumption, and someone responsible for the next step. It should make next week's decision easier.
Keep the comparison that tells you what changed
Retain the forecast that was available when the decision was made. Compare it with actual receipts and payments for the same accounts, currency basis, and period cutoff.
Updating the old forecast before measuring the difference removes the evidence of what you expected. Keep three views distinct:
| View | Purpose |
|---|---|
| Original budget | The agreed target or spending plan |
| Previous forecast | What the business most recently expected to happen |
| Current forecast | What the latest evidence suggests will happen next |
A budget can be revised through a deliberate approval process. Preserve prior versions so changes remain explainable. Business.gov.au's budgeting guidance recommends comparing actual results with the plan and investigating differences; this article applies that habit to short-term cash.
Start with a bridge from expected cash to actual cash
Use a single sign convention: positive amounts increase cash relative to the forecast; negative amounts reduce it. Under this convention, paying less than expected creates a positive cash variance, even if the reason is undesirable.
The bridge begins with forecast closing cash. Add differences in opening cash, receipts, and payments to arrive at actual closing cash. If it does not reconcile, investigate the data before explaining business performance.
This is a cash comparison. An accrual expense variance answers a different question and can have a different sign or date.
Worked example: a $12,000 shortfall with three causes
Fictional Cedar Lane Services forecast closing cash of $65,000. It closes the week at $53,000. Opening cash matched the forecast, and the team identifies these movements:
| Explanation | Cash effect versus forecast |
|---|---|
| Forecast closing cash | $65,000 |
| Customer receipt moved to next week | −$18,000 |
| Unplanned repair paid this week | −$4,000 |
| Supplier payment moved to next week by agreement | +$10,000 |
| Actual closing cash | $53,000 |
The bridge reconciles: $65,000 − $18,000 − $4,000 + $10,000 = $53,000.
The net $12,000 shortfall hides $32,000 of gross differences. Looking only at the net result would miss how much activity moved away from plan.
The supplier delay improves this week's cash, but it is not a saving. The obligation remains. The customer delay may reverse next week, but only if the expected receipt is still credible. The repair permanently consumes an additional $4,000 in this example.
Give each cause the right treatment
Timing: money moves in a different period
Move the unpaid receipt or payment to its latest supported date. Preserve the amount unless other evidence changes it. Confirm who supplied the new date and whether it depends on an unresolved approval or dispute.
For Cedar Lane, a customer promise needs follow-up, while the revised supplier date needs to remain in the payment calendar. Neither difference should disappear merely because the current week is closed.
Lasting change: the total economics changed
A repair, a higher supplier price, a lost order, or a customer credit changes more than timing. Determine whether the effect is one-off or recurring before applying it to future weeks.
The repair in the example has already reduced actual cash. Do not subtract it again from next week's opening balance. Add further repair payments only if they are separately expected. If it reveals recurring maintenance needs, revise that assumption explicitly.
Data or classification: the picture is wrong
An omitted account, duplicate import, or misclassified transfer requires a correction and reconciliation. A payment assigned to the wrong expense category can distort departmental spending without changing total cash.
Use the five cash-data checks to distinguish an operating problem from a reporting problem. Record the correction so a future reviewer can explain why a historical number changed.
Roll the forecast forward without double counting
After reconciling the completed week, start the next one with actual closing cash. Keep only still-unpaid receipts and payments in future periods. Reassess recurring assumptions using the new evidence.
In the example, next week's opening cash is $53,000. The delayed $18,000 receipt and $10,000 payment move into next week if those dates remain supported. The paid repair does not reappear as a future payment.
If both timing movements occur, their future net cash effect is +$8,000. That does not erase the repair cost. It simply completes two movements that were previously expected earlier.
Then inspect the revised lowest cash balance and date across the 13-week horizon. A difference matters most when it changes the time available to respond.
Ask whether the same mistake keeps returning
A single late payment may be an exception. Repeated late collections from the same customer suggest the forecast date is too optimistic or the collection process needs attention.
Track a small number of recurring explanations: customer approval delays, missing commitments, underestimated payroll costs, and unrecorded annual payments. Change the underlying assumption or process once there is enough evidence.
Avoid judging forecast quality solely by one percentage. Large opposing errors can cancel out; a tiny error can look enormous against a near-zero denominator. Review receipt and payment differences separately, along with the largest individual misses.
End with a decision record
For each material difference, write what happened, whether it is timing or lasting, the evidence behind the revised assumption, and an owner with a date. Keep the list short enough to discuss in the weekly cash meeting.
CashCatalyst's budget comparison can help identify differences between planned monthly spending and recorded cash spending. Combine that with a saved record of your prior cash forecast when reviewing forecast accuracy. Budget variance and forecast variance are related, but they are not interchangeable.
This week, explain the three largest differences individually before changing any broad assumptions. A useful explanation should let another person understand what action follows.
Frequently asked questions
Is lower spending always a favourable result?
It improves cash for that period, but it may reflect postponed work, an unpaid obligation, or missing records. Understand the reason before treating it as a sustainable improvement.
Should we make the whole forecast more conservative after one miss?
Change the assumptions supported by new evidence. A blanket reduction can hide the actual cause and make the model harder to learn from.
Sources and editorial note
Background: Business.gov.au: Create a budget. The cash bridge, classification process, and examples are original editorial illustrations. Align formal budget reporting and accounting adjustments with the business's finance policies.