By JONATHAN PENROSE
YLOA General Manager
At the board meeting Tuesday night I introduced a new financial report that should make it easier for you to see the financial health of both YSPUC and YLOA. This tool provides a quick snapshot of our expected year-end operating income based on our year-to-date financial results and our projected income and expenses for the rest of the year. If you look at the bottom right of the report you can easily see if we expect to be over or under the budget for the year and by how much.
If the results vary significantly from our budget, we will explain where the differences are, why they exist and what it means for our community. Please keep in mind that the budget for the year is our best estimate of annual costs and expenses.
As the year progresses, we gain more information about our actual revenue and expenses and more information about what we expect future revenue and expenses to be. There are many legitimate reasons this can change during the year based on things that were unknowable at the beginning of the year.
For example, water sales for YSPUC are greatly impacted by the weather. We make our best estimate of revenue for this year based on prior years and, in general, are highly accurate — however, the actual weather which was unknowable at the beginning of the year will always impact these estimates. With this tool we quantify the impact of the differences and revise our year-end forecast to more accurately reflect the information we now know.
In some cases, we will experience increased sales and adjust our projections for income higher. In other cases, sales will be lower than anticipated and we will adjust the forecast lower. As this occurs, we will use the new forecast to make operating adjustments as needed.
The Forecaster also takes into account the seasonality of revenue and expenses and provides a much better picture of how closely our current financial results compare to budget. This is more accurate than dividing our annual budget by 12 and gives us a much better estimate of how we are doing. An example of this can be found in our current YSPUC forecast.
Our annual budget divided by 12 would lead us to expect $825K of revenue from January through the end of June. Comparing that to our actual revenues of $768K would make it appear that we are running $57K behind our projections and would naturally lead to concern about whether we will be profitable for the year or not. It would also raise questions about what is wrong and will we be OK financially for the year.
With our new Forecaster, which takes seasonality and weather into account, we can see that based on historical performance, we are now actually expecting revenue for the year to be $46K higher than our original budget estimate – so instead of being $57K behind, we are $46K ahead – a positive difference in revenue of over $100K. This also explains why COGS (or expenses for producing water) are higher too — simply put, it costs money to pump our water and the more we pump, the more money it costs — so if we sell more water, it will increase how much we spend to pump it.
Now that we know this, we can make better decisions to repair additional wells, hire additional staff or make other decisions for the best interest of our whole community. In this case, we have been able to repair additional wells while still operating within our approved budget.
With each month that passes in the fiscal year, we can make better and better predictions of where we will end up. This means that the forecast will change every month as this knowledge grows. The original budget numbers will not change.
So by comparing the current forecast to the original budget we can easily determine if we are doing better or worse than expected and make better decisions about how to manage our money and resources for the remainder of the year.
Please keep in mind that our “goal” for YSPUC and YLOA is not to make a profit, but to use our budget responsibly and efficiently for the best benefit of our community — if we are operating under budget, we may be able to take on other projects and improvements that we had planned to defer to future years. If we are operating over budget, we may make decisions to move some planned projects and improvements into future years.
So not only does the Forecaster provide a better way to share our current financial situation, it is also an essential management tool that helps us operate more wisely and efficiently.
At future board meetings we will introduce additional reports that will provide you with greater insight into other areas of our financial health, like receivables and cash reserves.