Use mini drivers in the Balance Sheet budget
- Denise McGettigan
Mini drivers are an easy way to represent the links between your statements when you use 3-statement budgeting. They reference your Profit and Loss (P&L) accounts to forecast or budget your Balance Sheet items, so your Cash Flow statement better reflects reality. They are called mini drivers because they have a similar purpose to a driver tab, but they are for use only in the Balance Sheet tab. Watch this video for a quick overview.
Start by either creating a Balance sheet budget or, if you have one already, right-clicking the Balance Sheet tab and clicking Edit drivers setup.
In the bottom-right corner, click + Add driver and select the required template: Debtor Days, Creditors, Stock, or Custom. See below for detailed information on each template.
Add a name for the driver. This name is just for reference purposes here, it doesn't get carried through to the Balance Sheet.
Select the account you want to drive. This is the account in the Balance Sheet whose values will be automatically driven. The driver lines will display underneath this account row. You can only select one account per mini driver, and you can't select a Bank or Retained Earnings account.
Click the Expand button to view the driver’s default components (lines): Calculation, Adjustment, Days, Reference, and Opening Balance. See below for detailed information on each one.
Update the lines as needed, then update the calculation to reflect your changes.
Click Save and finish.
Proceed to explore the driver lines under the applicable accounts in the Balance Sheet budget.
Mini driver templates
Three out-of-the-box templates cover common scenarios for debtors (accounts receivable), creditors (accounts payable), and stock. There’s also a custom option that allows you to create your own driver from scratch. These templates have pre-built lines with basic inputs for a calculation, allowing you to quickly model common interactions between your Profit and Loss (P&L) and Balance Sheet items without having to manually enter formulas.
Debtor Days (Accounts Receivable)
Debtor Days is the most commonly used mini driver. It allows you to predict how your debtors are going to behave based on the level of sales you have in a given period. Its template has the following components:
Calculation: (P&L Movement/Days()) * Accounts Receivable Days, where:
Days = Accounts Receivable Days. The number of days it takes to receive payment from your customers.
Reference = The P&L Movement; the accounts in your P&L that drive your accounts receivable. In other words, the accounts from which you are going to get the sales that determine your debtor balance.
Suppose you typically collect debtors every 22 days and this is based on the values in your Sales (Retail) and Sales (Online) accounts. You can customize the Debtor Days template to meet your needs, as illustrated in the following image.
In the Balance Sheet, when you expand the Accounts Receivable account row, you can see the mini driver lines. When you look at the values, you can see the movement in your debtor balance, which reflects when there are higher and lower sales.
Watch this video for a demonstration of adding the Debtor Days mini driver:
Creditors (Accounts Payable)
The Creditor Days mini driver works similarly to the Debtor Days except that it applies to costs. Its template has the following components:
Calculation: (P&L Movement/Days()) * Accounts Payable Days, where:
Days = Accounts Payable Days. The number of days it takes to pay your suppliers.
Reference = The P&L Movement; the accounts in your P&L that drive your accounts payable. In the case of creditor days, you need to identify the accounts from which you are going to determine your creditor balance.
Suppose you typically pay your creditors every 40 days and this is based on the values in your Purchases and Expenses accounts that are paid on credit terms. You can customize the Creditor Days template to meet your needs, as illustrated in the following image.
In the Balance Sheet, when you expand the Accounts Payable account row, you can see the mini driver lines. When you look at the values, you can see the movement in your creditor balance, which reflects when there are higher and lower purchases and expenses.
Watch this video for a demonstration of adding the Creditor Days mini driver:
Stock (inventory)
The Stock Turnover mini driver has a slightly different calculation to that of the Debtor Days and Creditor Days. Its template has the following components:
Calculation: (P&L Movement * Stock Days) / Days(), where:
Days = Stock Days. The number of days it takes to sell stock.
Reference = The P&L Movement; the accounts in your P&L that drive your accounts payable. In the case of stock days, you need to identify the accounts from which you are going to determine your stock balance, which is typically your Cost of Sales.
Suppose you typically turn over stock every 32 days and this is based on the values in your Cost of Sales accounts. You also need to make adjustments for seasonality impacts throughout the year. You can customize the Stock Days template to meet your needs, as illustrated in the following image.
In the Balance Sheet, when you expand the Inventory account row, you can see the mini driver lines. When you look at the values, you can see the movement in your stock balance, which reflects when there are higher and lower cost of sales. The adjustment line is empty, ready for when you need to manually enter values.
Watch this video for a demonstration of adding the Stock mini driver:
Custom
The custom option is simply a blank calculation from which you can build your own driver using a range of line types.
Before:
After (example):
This video shows how to add a mini driver to better drive non-current borrowings (long term loans). This driver contains the following types of lines: Calculation, Opening, Reference, and Adjustment.
Mini driver lines (components)
By default, each driver contains a calculation that drives the selected account row in the Balance Sheet. Each template, except for Custom, has prebuilt lines that are referenced in that calculation. You can edit those lines and add more to update the calculation. These lines are visible in the Balance Sheet when you expand the account row. In the case of a Custom template, you can use a range of lines to build your custom calculation.
The following table has a brief description of each line type. Watch the video in the custom mini driver section above to learn more.
Line type | Description |
|---|---|
Calculation | This line contains a formula that references the other lines (variables). The results of the formula are displayed in the driven account row in the Balance Sheet. |
Adjustment | This line is like a working line. It allows you to adjust values for seasonality. In the Balance Sheet tab, the values in this line are editable, as indicated by the yellow background. |
Days | This line shows the number of days in the period, as specified by you. This is a key element of the Debtors, Creditors, and Stock Days calculations. For example, it might be the number of days it takes to receive payment from your customers, pay suppliers, or sell stock. |
Reference | This line allows you to select to one or more P&L accounts from your Main tab for use in the calculation. Click Add/Edit References, then locate and select the account(s) you want to reference. The Referenced count increases accordingly to let you know at a glance how many accounts are being referenced. When referring to multiple accounts, the sum of those accounts will display in the line in the Balance Sheet. |
Opening (balance) | This line makes a Balance Sheet item consider the prior period’s closing balance as its starting position. |
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