Out of Balance
In an ideal world, you manage the cash flow of your small business so tightly, that there are no differences between the bank account statements and your cash flow balance; not to mention that your forecasted values turn out to be exactly what you cash in or pay, down to the last penny.
Happily, we do not live in an ideal world; otherwise, things would get very boring. If you are like most managers of small creative businesses out there, you’ve surely come across differences between the cash plan balance and the bank account statement.
That’s when you probably experience some odd sensation in your stomach. We’re not talking about the “I ate too much” sensation, but the one that reminds of the college years, right before an exam, when you just realized you forgot to revise an entire chapter. A big question mark is hovering above your head: “where did that money go/come from?”
A possible reason is that you probably forgot about a payment (forgetting about cashing in an invoice is less probable but not impossible, of course). If that is the case, you can tell by the significant higher cash plan balance compared to bank account one. Check the bank account statement and see which transaction you missed. Write it down in the cash plan, so you have an accurate track of your transactions.
The other very probable reason for the difference is the conversion of foreign currency amounts at different exchange rates. It means that when you forecasted foreign currency transactions, you related to the exchange rate of that day, while on the day the payment actually took place, it was made at a different rate. Sometimes these differences are little, but it may happen that there is an important exchange rate fluctuation in time (especially if the transaction takes place long after it was forecasted).
In such cases, once you identified this as the reason for the unbalance, you may modify the forecasted values to the actual ones. Or, if you don’t want to dive into details, just add another Income/Expense line for that particular difference.
No matter the method, it’s always good to settle such unbalances. Not for the sake of detail, but for the sake of consistency and awareness. As a manager, you need to know clearly where the money goes, how much gets into the business and how to plan the next moves. If you let these differences to add up, you’ll find yourself, after a while, relying the business decisions on misleading numbers.
In conclusion, don’t stress too much about details, but don’t ignore it either. Make sure you know at any point what‘s really going on with the company’s money.