The Budgeting and Forecasting Experts Blog

Payroll Expense Planning as part of the Budget Process for Non-profits

This is the first in a series of  posts for non-profit organizations that focus on how better budgeting can lead to better planning and decision making.Non profit organizations largest expense is people, so not surprisingly it tends to be the central focus of the planning process and the most challenging to budget.  If you have a payroll tool you can certainly load the resulting expenses into your budget.  But as good as payroll tools
are for employees currently hired they don’t offer much for modeling future hires.  The payroll expenses is not only driven by the headcount, hourly wages, and planned hours, but also the many related expenses.  Excel and other formula heavy models estimate the expenses with percentages over the months.  The fact is taxes like Federal and State Unemployment have caps.  Other expenses like healthcare are flat charges not percentage.  Healthcare and 401Ks often have delayed starts.  Employees don’t always start on the first of the month and leave on the last day.  So formula tools estimate and overstate all types of payroll expenses.  Budget Maestro lets you calculate the taxes in the right month, caps the expenses, and calculates the payroll expenses right down to the day.

For many of non profit clients managing planned new hires and this resulting cascade of related expenses off of their start date is a crucial part of the planning process for meeting the organizations goals and growing new service areas.  With spreadsheets, the shifting time aspects of the budget is extremely cumbersome.  Just think of a time where you took the budget to a planning meeting only to find out some key initiative impacting hundreds of activities needed to push back 6-9 months.   So being able to layer in the new start dates can be a game changer, giving you timely access to new models that previous would have taken days to complete.

We put together a 15 minutes video to show you how Budget Maestro helps Non Profit companies glide through the budget including payroll, as well as revenue, expenses, and even the cash impact of the planning initiatives.

Tags: budget maestro, budgeting, budgeting and planning, budgeting software

CFO’s Big Picture – Can you Leverage Available Data and Technology?

How the CFO role evolved and is more dependent on information technology

The CFO’s office has changed considerably over the years.  While the title still stands for “Chief Financial Officer”, many of the duties of a typical modern day CFO are not financial in nature. These range from legal and compliance, to risk management, to overseeing the IT and HR functions and other responsibilities.

I remember in years past that CFOs were almost always accountants by training, many with a CPA designation.  Nowadays, we see more general business professionals take on the CFO office, occasionally with little or no direct work experience in accounting and finance.

While it’s true that today’s CFO is more of a policy maker, strategy planner or legal expert than an accountant, the CFO is still ultimately responsible for all accounting, finance and reporting activities in the organization.  The CFO is a signer on external financial reporting on statements provided to lenders and shareholders and in public companies is personally responsible (and liable, along with the CEO) for accuracy and completeness of reported data and disclosures to the SEC.

An area of increasing responsibility for CFOs is forecasting their companies’ future financial health.  They need to answer (along with the CEO) to the board of directors on issues such as compliance and reporting deficiencies, internal and external audit matters, legal action, and whether or not the company is on target with its revenue and expense forecasts, as well as other business related issues.  They also are responsible for all internal and external reporting and all required disclosures.

Traditionally, much of the CFO’s ability to make or influence important decisions was based on limited available data from the organization’s accounting system and other data sources not directly linked and integrated into the finance and accounting areas.  Decisions were based on prior experience, intuition, and to a certain extent on speculation.

It is not surprising to realize that many, so called, “business mistakes” were honestly based at the time on available information and limited ability to track important data, such as leading indicators, actual key performance indicators, financial ratios, etc., all available today thanks to an incredible array of software business tools and a solid infrastructure.

These software tools are available not only to Fortune 1000 or large and complex organizations, but also to small and medium size companies.  The feature set found in these applications, while not always completely adequate for the largest organizations, can certainly be implemented in smaller organizations in many industries, empowering CFOs and their finance and accounting teams to gain insight into their company’s performance and help the executive team in making decisions that will steer the company in the right and expected direction.

Particularly important to CFOs is the ability to perform a complete and accurate forecast of the financial health and performance of their organization, relying on intelligent data gathered in the process and on automated software controls and processes that make such accurate forecasts possible.

In a future blog post I will elaborate on how a small to medium size company CFO can harness the power of this technology in their daily work, and provide greater value to the board of directors and shareholders.

Tags: budgeting, financial planning software

Are You Still Consolidating Financial Statements in a Spreadsheet?

Why consolidating financial statements in a spreadsheet is a very bad idea

It seems that ever since there was a spreadsheet people have been relinquishing many tasks and responsibilities to it and for apparently good reasons.  It was easy to set up and perform all but the most complex functions and it was available everywhere.

Admittedly, an application such as Microsoft Excel which took the business world by storm (have you seen a non Excel spreadsheet used lately?) is a lot more powerful than its earlier versions.  While packing an impressive collection of features suitable to anything from making simple lists and flat file databases, to adding up columns of numbers, to more complex analysis tasks using functions and VB programming and incorporating its incredible graphing and display capabilities, it also inherently presents risks which become increasingly greater as the complexity of the model increases.

It is commonplace in business today that most of these spreadsheets (workbooks in Excel, containing from several to many individual worksheets, or tabs, often linked to other Excel files across entire computer networks) are authored by individuals, who while having the necessary skills to design and implement them, almost never think of reviewing them for accuracy and completeness of formulas, functions, links and any programming code.

The few spreadsheets that are looked at are usually reviewed by their own authors and are almost never subject to a peer review, or by someone completely independent.  From an internal control perspective, this practice is a bad idea and causes so many spreadsheets to be flawed and without proper risk mitigating controls.

In an article by Tony Kontzer in Tech Target, titled “Even with spreadsheet management, using Excel for finance isn’t wise”, and quoting additional authors and researchers, the author makes a point of the typical “ungoverned” use of spreadsheets (Excel) and how ingrained it is in the daily work of accounting and finance professionals.

Even with the new MS Excel 2013 with it’s better than ever built-in audit tools, it is ultimately the end-users who must establish an effective control environment that can be practically maintained and audited.  This rarely happens in the real world, leaving numerous critical financial statements at risk for material errors.

In a research paper published by Dr. Ray Panko, of the University of Hawai’i
College of Business Administration,

(http://panko.shidler.hawaii.edu/SSR/Mypapers/whatknow.htm)

and a follow up paper  (http://arxiv.org/ftp/arxiv/papers/0809/0809.3613.pdf),

it is made clear that a very large percentage of spreadsheets used in business today are flawed.  This should become a major concern for those using spreadsheets in accounting and finance functions.

In my work in internal audit and financial reporting consulting I constantly run into organizations (many of which are fairly large and complex, some publically held) that put too much trust into results produced by an array of homegrown spreadsheets.

This is especially true for spreadsheets entrusted with producing consolidated financial statements and also with the preparation of annual corporate budgets and various forecasts, still very popular with spreadsheets.

I have advised managements on the need to disclose such material weaknesses, and I have witnessed several occasions when the external auditors insisted on making such disclosures.

When testing the design and effectiveness of an internal control performed in a spreadsheet, and especially consolidations of financial statements, unless there is clear evidence that the spreadsheet (or any end-user computing activity) is periodically reviewed for accuracy and completeness of its design and use, and is under change management control, you can’t help but conclude that there may be a material weakness in this process, one that must be disclosed by publically held companies in their annual reports.

What this implies is that (for any type of organization) financial statements produced by spreadsheets are likely to contain material errors.  For that reason, purpose designed consolidation tools are much more preferable to using spreadsheets.  Many of the small and medium size company ERP software applications offer consolidations within the application database without exporting data to a consolidation spreadsheet.  Once internal control over the process is established within the database, it is much simpler to monitor and audit than with spreadsheets.

If your organization still relies on financial statements consolidated using a spreadsheet, I strongly suggest you take another close look at the process and either introduce a well documented and periodically tested set of internal controls over the design, use and change management of this process, or better still, perform it in a purpose built application or more practically for small and medium size organization, implement the process within your accounting or ERP software, in a more secure environment.

Not taking one of the above steps is leaving too much to chance, which invariably, sooner or later, will result in material misstatements in critical financial statements.

Tags: budget software, budgeting, budgeting and forecasting software, budgeting software, business budgeting software, financial planning software, spreadsheets

Two Key Principles in the Budget and Forecast Process

Observe these principles and you will help steer your organization in the right direction

It was a great revelation when I realized that there are just two key principles in the budgeting & forecasting process, regardless of the size of the organization:

1)      Budgeting and periodic re-forecasting of the entire chart of accounts and not just the income statement (P&L).

2)      Periodically and timely analyzing actual financial performance against the budget and understanding the data so it can be effectively conveyed to management for informed and confident decision making.

These two key principles, when properly observed, can make the difference between business success and business failure.  This is especially critical for small and medium size organizations where cash flow and other balance sheet accounts are often impossible to forecast while periodic and timely analysis is seldom or inconsistently done.

Despite these challenges, observing these two principals is extremely important for these organizations and this is why:

  • If you only forecast your income statement accounts (generally using the accrual method of accounting) you will not have visibility into key balance sheet accounts (e.g., Cash, A/R, A/P); you will not be able to forecast key financial ratios and you will not have a complete understanding of the future financial health of the company.
  • If you do not periodically, and timely (i.e., right after your actual accounting period is closed) analyze the actual results against the budget, you will not be able to quickly react (or not at all) to significant variances of actual results versus expected results, your budget.  Your organization may be headed in a wrong (and often dangerous) direction and since management may not be aware of that, no corrective action will take place, often further causing the situation to deteriorate.  Exceeding budget expectation in one or more areas may not be noticed and focus may not be placed on these areas.

In order for you to consistently and accurately observe these two principles, you need to have the right tools and the commitment to properly use them.  From my experience, using a popular tool such as a spreadsheet (e.g., MS-Excel) is not going to address these challenges, especially in forecasting a reliable balance sheet, achieving error free results and performing a meaningful analysis.  You will need a more dedicated software solution that is designed specifically to perform these tasks.

If you have never forecasted a balance sheet because it was time consuming, very complicated and error prone, please realize that most organizations don’t do that for these very reasons.  Would they forecast their balance sheet if they had the right tools and at the right cost?  Of course they would.  The benefits are just too great not to do it.

One software solution that comes to mind, offering these great benefits, especially for small and medium size organizations, is Budget Maestro from Centage Corporation (www.centage.com).   It was designed and programmed to address these two principles.

Fulfilling Principle #1: With Budget Maestro you have the ability to forecast all of your G/L accounts.  This works by having each budget line (revenue, expense, etc.) linked to a G/L account in the Budget Maestro application.  The software then, based on your assumptions and other settings, will post all necessary amounts to all affected accounts, including all participating balance sheet accounts.

The forecasted balance sheet (and the derived forecasted Statement of Cash Flows) will reflect accurate balances, only relying on your data input and assumptions without any user provided formulas and links – everything is automatically done in the software.  Read my blog entry “Generate Accurate Forecasted Financial Statements as your Budget”  for more detail on how this really works.  For those of you who have built complex financial models using spreadsheets, there is absolutely no programing of formulas, functions and links in Budget Maestro, so fulfilling Principle #1 becomes a reality, even for a small organization with limited resources.

Fulfilling Principle #2:  Budget Maestro is designed to allow you to quickly and effortlessly extract data from your actual accounting G/L at each period end.  This is available for many of the more popular accounting and ERP software, and in those cases where there is no direct link, Budget Maestro easily allows the importing of trial balance numbers at each period end.

As soon as you have the actual data, you can see where you are, right after an accounting period is closed, and with no additional delays, intelligent and informed decisions can be made.  For the ultimate data analysis experience, Centage Corporation offers their Analytics Maestro software module, which seamlessly connects to Budget Maestro data to give you the ultimate analysis tool where you will truly understand your data, through tabular and graphic representation customized by you to precisely suit your needs.  Perform the analysis periodically, and you will have fulfilled Principle #2.

Regardless of what tools you use, you must make an effort to observe these key principles and from my experience in many industries, there are no shortcuts here.  Harnessing the power and intelligence of Budget Maestro with its companion product Analytics Maestro, you will obey these two principles and help navigate your business through each budget period.

Doing anything less is too much of a compromise and can never mitigate financial risks inherent in every business enterprise.

Tags: budgeting, forecasting

A Modular and Automated System for your Annual Budget

How a modular approach in preparing and putting together your annual budget works to your advantage

By Alan Hart, MBA

Those who are involved in the administration of a corporate budget know from experience that many pieces contribute to a complete and consolidated budget.  You probably have to delegate many of the individual pieces to managers who are responsible for their departments’ performance and who prepare and submit a budget for the business units they are responsible for.  They usually submit their business units’ budget for sales, cost of sales, operating expenses and payroll.

People in the finance group typically submit budgets for capital expenditures, borrowings, investments and other activities that don’t fall under specific business units’ managers responsibilities, although additional budget lines (e.g., capital assets) can also be provided by unit managers, as designated by the budget administrators.

Over the years I discovered how important it is to have all these pieces put together in a clear and logical manner.  It makes it a lot easier to consolidate the budget and produce the desired reports, and most importantly, perform periodic analysis and reforecast.

From my experience with various software solutions, I discovered that one modular system, titled Budget Maestro from Centage Corporation (www.centage.com) makes things a lot easier.  The software is divided into logical modules, such as revenue / cost of sales, operation expenses, personnel expenses, assets, etc.  Each budget module can accept input from all designated business units (defined as entities in the software). Managers responsible for their business units only submit their relevant data.  Finance managers contribute to other areas as needed, and all data is automatically consolidated in the software.

Since Budget Maestro was designed from the start to allow accurate and complete forecasting of all GL accounts, you automatically get a full set of forecasted financial statements, updated in real time, as additional data from business entities make it into the model.

As soon as you have an approved budget, the financial statements that are automatically produced by the system allow you to see and understand your forecasted results. I think I mentioned in previous posts that there is absolutely no user programing in making these standard financial statements and other reports available to use.

Making revisions to the budget becomes much easier because of the modular design of this software solution.  You get a lot more time to analyze your actual financial results against the budget, instead of slaving over the preparation of the budget and struggling with errors, omissions and lengthy and tedious updating of data during the budget year.  To me it makes perfect sense to look for automation and simplification of this process, as long as you get the expected results.

Tags: budget software, budgeting, budgeting and planning

Our forecast calls for growth

Today we issued an announcement highlighting the great momentum our company has experienced over the past year. By focusing on product innovations including major updates to Analytics Maestro we were able to grow our customer base by 30% in 2013 signing on Alliance Tire, Bard Date, Brandeis University, Home Service Stores, Vermont Country Store and many more. Despite the diversity of their business models, each of these organizations were looking to do the same thing – streamline budgeting and forecasting processes in order to support better business decisions – and Budget Maestro delivers!

To see more details about our 2013 highlights check out today’s press release. As our President, Barry Clapp said, “We are grateful to our customers for their loyalty and to our employees for their dedication” — we can’t wait to see what 2014 will bring!

 

Tags: budget maestro

Elegance in the Budgeting Process

You probably never thought the budgeting process could actually be enjoyable

By Alan Hart, MBA

www.budgetingexpert.com

For as long as I can remember, I never enjoyed working on a company budget and going through this arduous process, at times seeming hopeless with no end in sight.  Deadlines had to be met and there were always delays in getting data back from business units.  Compiling the collected data was a scary experience at best, never knowing if (and usually when) something was going to break down requiring troubleshooting of worksheets and other homegrown tools pieced together to make this whole process work.

Later, I was happy to find out that there were purpose built solutions, designed to alleviate these hardships and provide a better set of tools to get the job done.  I was particularly delighted when I discovered Budget Maestro from Centage Corporation (www.centage.com) about 10 years ago, then a small startup company, with a very different kind of solution.

I was finally able to put a budget together almost painlessly (approval of data for entry into the model still had to be obtained – no way around that, and for a good reason), but once I was set up, within a few days, I was able to make sense out of this whole process.  Data entered into the model automatically and without user interaction started appearing in the right places on the various standard and custom reports.

Data from our actual accounting GL could be easily interfaced with Budget Maestro and quickly compared with the budget data, or any of its stored versions.  Things finally became more enjoyable.

Because of the way this software was designed (primarily, to be an extension into the future of the actual accounting system), once the basic and relatively simple setup is done, the software takes over and using the assumptions and data entered into the model, makes all the accounting entries that are required to produce the end result:  A complete set of projected financial statements and many other useful reports.

Thinking about this transition to an almost fully automated system (you still need to interact with people and often question their submitted data and the reasons behind it), I see a lot of elegance in Budget Maestro and the entire process.  I like the way the software removes the tedious work and many potential errors and omissions always present in this process.

After doing this for many years I think I’m OK with the profession I had chosen.  It’s really not that bad if you find the right tools for the different jobs at hand.

Tags: budget maestro

You finished your budget preparation – Now what?

How to make sense out of your budget and drive the decision making process

By Alan Hart, MBA

You and your team have worked hard on putting together your company’s annual budget.  You went through several iterations, were able to consolidate the various budget components, got approval and released the final budget book for the upcoming year.  Now what?

You know that you need to monitor your company’s financial performance against the approved budget.  You also know that you should periodically make changes to the forecast, and certainly use the analysis results to drive your company’s decision-making process.  In other words, be able to timely and consistently provide management with the data they need in order for them to make important decisions. Continue reading

Tags: analysis, budgeting

Can Finance be More Strategic?

While more and more companies embrace data-based decisions, that often means that the finance department spends an inordinate amount of time collecting data.  And, unfortunately, that can be a big down-side to embracing analytics.  Even if they are not trying to crunch Big Data, finance grapples with getting the right data in a timely manner.  The tradeoff is that the more time spent gathering data, the less time spent analyzing that data.

So maybe there’s an argument for needing less data.

In his article, “Cut Back First to Enhance Management Reporting,” Neil Amato, a senior editor with the AICPA Magazines and Newsletters team interviewed a CPA who’s client, a “large manufacturing company in the Midwest” inventoried its existing reports and “turned off about 400 of them.”

Clearly, they realized they were spending too much time gathering data and entering them into reports that didn’t contribute to the big picture.  And that’s where finance has an opportunity to be more strategic.  After all, no one knows the numbers better than the finance department.  What if finance focused more on providing meaning and strategic insight, instead of just chasing numbers?

As Steve Player, CPA, managing partner at The Player Group and Program Director for the Beyond Budgeting Round Table in North America, told Amato in the same article, “Most people in finance build their career on building rows and rows of numbers, tables of data that don’t highlight and illuminate.  We’ve got to convert into more moving pictures, more graphics, more understanding how to highlight and illuminate the important things, [telling] the story of what’s really happening in operations and understanding the key drivers.”

Think about your organization – how much more value could you bring if you could reduce the time your team spends chasing all the numbers, and instead focus on those that are meaningful?

Tags: budget software, budgeting and forecasting software, budgeting software

Routine Analysis of Actual Performance Against Established Budgets

Use the Right Tools and Techniques to Perform Real-time Periodic Analysis of Your Actuals vs. Budget Numbers

By Alan Hart, MBA

Many accounting and finance professionals know how important it is to continually monitor their organizations’ actual performance against their approved, and often revised, budget.  In reality, many are unable to perform this seemingly simple task or don’t do it often enough, or if they do it, the actual data is already dated.

In today’s fast paced accounting and finance environments, it is easy to neglect this important function, especially if it is not intuitive and easy to perform.  Like all professions, you need the right tools to perform the jobs they were designed to perform.  Budgeting, forecasting and analysis are no different. Continue reading

Tags: analysis, budgeting