Cash flow variance analysis compares actual cash movements with the forecast saved before the period began. Explain why cash differs from plan, then decide what assumptions and actions need to change. Start with bank receipts and payments, not a story about whether the sales target was hit.
Before committing to inventory, produce a reconciliation and action list: what moved, why, when it may reverse, and who owns the next step. The worked example below uses invented numbers, not a client forecast or result.
Freeze the forecast and reconcile the bank balances
Save the baseline before the week starts. Keep the next updated forecast in a separate version; overwriting the original would erase the comparison you are trying to explain. Choose one account scope, currency, start/end date and settlement policy for both views.
Reconcile actual opening cash and closing cash to the accounts included in that scope. Eliminate transfers between included accounts so they do not inflate receipts or payments. If a payment processor balance is outside your chosen scope, document when a settlement becomes an included bank receipt. Record unresolved reconciliation differences before explaining operating causes.
The basic identity is closing cash = opening cash + receipts − payments. The Australian government’s cash-flow guide sets out this calculation and distinguishes estimated figures from actual figures. This example uses general cash arithmetic, not tax advice.
An issued invoice is not yet a bank receipt. For this analysis, use the agreed settlement records for receipts and payments; keep revenue recognition and expense accruals in their separate accounting views. A purchase commitment matters to a future cash forecast even when the payment has not happened this week.
Worked example: $115,000 forecast versus $96,000 actual
All amounts in the following tables are $000. Assume one fictional week, the same bank accounts, and no transfers, borrowing, foreign-exchange or tax differences. Payments appear as positive amounts. Our cash-impact convention is actual minus forecast for receipts and forecast minus actual for payments. Positive means more closing cash than planned, not automatically a better business outcome.
| Line | Forecast | Actual | Cash impact |
|---|---|---|---|
| Opening cash | 100 | 100 | 0 |
| DTC settled receipts | 60 | 54 | −6 |
| Wholesale collections | 40 | 25 | −15 |
| Inventory payments | 50 | 45 | +5 |
| Payroll and operating payments | 35 | 38 | −3 |
| Closing cash | 115 | 96 | −19 |
The forecast closes at 100 + 60 + 40 − 50 − 35 = 115. Actual cash closes at 100 + 54 + 25 − 45 − 38 = 96. The four operating differences reconcile exactly: −6 − 15 + 5 − 3 = −19. Opening cash is identical here; if it differed, that opening-balance difference would also belong in the bridge.
Investigate the cause before choosing a label
OpenStax’s discussion of variance analysis emphasizes investigating differences between expected and actual performance. Its examples concern costs; the closing-cash sign convention above is our explicitly chosen analytical convention.
Use three working categories, with an unresolved category when evidence is insufficient:
- Timing: the same expected amount moves to a different period. Record the evidence and expected reversal date.
- Amount or operating assumption: the total expected receipt or payment changes, for example through volume, price or freight. Do not presume a later catch-up.
- Data or process: a duplicate, omitted transaction, wrong account, wrong date or forecast input needs correction. Preserve the correction trail.
In this hypothetical case, assume the missing 15 of wholesale collections has a confirmed expected payment date next week, and 5 of supplier payments was agreed to move to next week. Assume the 6 lower DTC receipts and 3 extra operating payments, attributed here to freight, do not reverse. These are stipulated explanations for the example, not conclusions you can draw from the variance table alone.
A supplier payment made later explains extra cash this week; it does not establish a saving. Likewise, an annual software renewal belongs on the future payment calendar even if it occurs only once in a particular forecast week. Check the obligation and date rather than treating an infrequent payment as nonrecurring by default.
Turn the differences into actions
For each material line, record dollar impact, cause and evidence, expected reversal week or “unknown,” owner, action due date, and the revised forecast assumption. Link the supporting record and use explicit dates.
| Example item | Evidence to retain | Owner and next action |
|---|---|---|
| Wholesale collection: −15 | Customer confirmation of expected date | Receivables owner checks settlement on that date |
| Inventory payment: +5 | Agreed supplier payment schedule | Payables owner includes 5 in next week’s payments |
| DTC receipts: −6 | Settlement and order reconciliation | Finance owner validates whether later receipts are expected |
| Operating payments: −3 | Freight invoice and payment | Operations owner checks the next shipment assumption |
Choose investigation priorities from cash available, payment dates and the decisions at risk. A small percentage difference can still matter before payroll or an inventory deposit. Review dollars alongside percentages, and do not allow a positive line to hide an unrelated negative one just because the net difference looks manageable. This is a suggested review approach, not a universal materiality threshold.
Reforecast from actual closing cash
The original next-week baseline starts at 115, receives 100 and pays 80, ending at 135. Under the stated timing assumptions, the revised view starts at actual cash of 96, adds the delayed 15 to baseline receipts, and adds the deferred 5 to baseline payments. All other next-week assumptions remain unchanged.
| Next week | Original baseline | Revised forecast |
|---|---|---|
| Opening cash | 115 | 96 |
| Receipts | 100 | 115 |
| Payments | 80 | 85 |
| Closing cash | 135 | 126 |
The revised close is 96 + 115 − 85 = 126. The remaining gap to baseline is 126 − 135 = −9, matching the nonreversing 6 receipt shortfall plus 3 extra payment. Reversing the timing differences adds a net 10 next week, but those differences still reduced this week’s liquidity.
If the 15 collection slips again while the supplier payment still occurs, revised receipts would be 100 and closing cash would be 96 + 100 − 85 = 111. That is a downside scenario, not a prediction. Keep the expected and delayed cases visible until the receipt settles; a confirmed expected date is not cash in the bank.
Use the same method across the remaining forecast weeks with actual commitment dates. For related decisions, see working-capital cash planning and the wholesale-readiness cash timeline. Do not infer a fixed number of runway months from this one-week example.
Common questions
How should percentage variance be calculated?
For this review, divide the signed line cash impact by the absolute forecast line amount and label the convention. If the forecast is zero, percentage variance is unavailable; show the dollar difference. No percentage alone determines whether the item needs action.
Does a timing difference matter?
Yes. In this example, the delayed collection affects cash before it reverses. Evaluate the balance on the dates obligations fall due, including a delayed-receipt scenario where appropriate.
What should happen after the review?
Save the frozen baseline, reconciled actuals, explanation log and revised forecast together. At the next review, check whether promised reversals happened and close or update each action.
If that review needs ongoing finance ownership, explore DTC finance support or forecasting and cash-planning services. To discuss one forecast or cash-timing question, book a complimentary 30-minute assessment for initial observations and next steps. It is not a complete free model build or an assurance audit.