Cash Management and Marketable Securities^203
Each month the net cash flow inwards or outwards is calculated and adjusted on the
previous monthís cash balance to give the new month-end balance. It is thus possible to
see whether at any time surplus funds will be available. If, on the other hand, the
forecast shows excess demands which cannot be met from the available cash overdraft
facilities, then it will be necessary to review the forecast and to make plans for modifying
the timing of particular cash flows so as to restore an acceptable balance.
A monthly control report should be prepared. This will have the same line analysis as
the forecast, and will set out the forecast and actual cash movements on each line and
the variances between them. These variances must be analysed by cause and responsible
factors so that action can be taken to improve cash control for the future.
The Cash Budget
When a cash forecast shows unsatisfactory cash balance throughout, it will probably
be necessary to consider ways of obtaining additional capital. But as cash shortages
are forecast only as short-term features within a general satisfactory trend, each item
in the forecast should be scrutinised for possible modification to either:
a) timing: or
b) amount.
The possibility of changes in amount should be dealt with first, because an improvement
in total collectibles or a reduction in total payables is of greater benefit to the business
than the mere shifting of an item from one time period to another.
In relation to sales income, forecast sales quantities and prices could be reviewed, but
care must be taken that this leads to a new figure which is genuinely expected to occur,
and is not just a change from a moderate to an optimistic forecast.
Because of the variety of possibilities (and often their relatively small amounts),
miscellaneous receivables may have been ignored by and it is possible that in total they
could have a significant effect on the cash position. Three particular examples are:
l Sales of scrap, possibly after sorting and cleaning;
l Disposals of underutilised fixed assets;
l Sales of surplus stock.
In each case the potential sales proceeds have to be compared with the opportunity
cost of relinquishing the assets.
In attempting to reduce the amount of proposed expenditure a good starting point is to
classify the various items between those that are essential to current operations and
those that are discretionary. Discretionary expenses may include such items as