Stop Programming Business Logic and Accounting Rules in Your FP&A Solution


Your ERP software doesn’t ask you to do that—why should your financial planning and budgeting solution be different?

Every accountant I’ve met has admitted to me that he or she had difficulties with manual, double-entry accounting principles when they first started out: they struggled with what GL accounts to use for a particular transaction, and more importantly, the transaction’s correct orientation, i.e., assigning amounts as either debits or credits in journal entries.

If you’re like me, you’ve had your share of journal entries that posted in the opposite direction of what you expected, requiring a reversal of the original entry and redoing it the right way.  That is if you caught these errors. I’ll never know how many manual journal entries with these issues have gone undetected or hopefully were caught later in a review or audit.

To make my life easier when making journal entries, I came up with a ‘Universal Cheat Sheet’ many years ago to assist me with assigning the proper orientation to manual journal entries. It covered all possible journal entries in all areas and provided the correct debit/credit journal orientation. I just found an old graphic representation of it, and it looks like this:

Microsoft Word - Stop Programming Business Logic and Accounting

I remember using this cheat sheet when making manual entries and not having to rely on memory. With experience, I was able to abandon this tool, learning to assign proper credits and debits to all entries on my own.

Now all modern accounting and ERP systems with an integrated GL are internally set up to cause all possible system transactions (e.g., sales, purchases, payments to employees, sales of assets, etc.) to automatically post to the correct GL accounts using the correct debit/credit orientation. The accounting department still performs a handful of manual journal entries, but the quantity pales in comparison with the vast number of automated journal entries originating from all enterprise activities.

With today’s computerized accounting systems, automatic postings of all enterprise transactions to a consolidated GL with accuracy, consistency and precise adherence to GAAP rules is expected, regardless of company size and the solution employed. It follows that finance’s planning and budgeting software solutions, entrusted to produce forecasted financial statements and other forecasted reports, should follow the same principles.

However, at the time of this writing, most planning and budgeting applications still expect their users to build their model using formulas, functions and links (just like in spreadsheet modeling) and there are no internal accounting rules forcing budget data to affect forecasted financial statements the way their accounting system counterparts do.

But I see a new trend emerging, one where enterprise planning and budgeting software solutions employ accounting rules, some of which are shown on the cheat sheet displayed above. These rules are built right into the software, causing all budget activities to post to the software’s internal budget GL in every relevant budget period, in the correct amounts, and of course, in the proper debit/credit orientation.

In this software architecture, a full set of forecasted (future period) financial statements can be produced accurately and completely, just like the actual accounting financial statements, using the same format and familiar look.

Leading this software trend is Budget Maestro, published by Centage Corporation of Natick, Massachusetts.  I think this approach will forever change the way companies of all sizes do their planning, budgeting and analysis.

Do You Practice Lean Processes? How About Lean Accounting and Finance? – Part 2

lean accounting

In the first installment of this article, I wrote:

If every iteration of the budget requires many hours or even days of work to recompile the budget and its derived forecasted reports and financial statements, you are not practicing Lean Budgeting!

Here’s why:

If your budget model is overly complex and you’re using spreadsheets or even purpose designed software with spreadsheet-like modeling, every little change requires hours or days of programming, troubleshooting errors (those detected) is a major and frustrating, possibly futile undertaking and each time you need to produce a slightly different version of the budget or do a quick what-if analysis it takes hours or days to deliver – you need to implement a Lean Budget.  I’m willing to speculate that many organizations without proper planning and budgeting tools simply don’t perform the required number of iterations or what-if analyses for the reasons above.

Another characteristic of a “Non-Lean” budget process is the limited or lack of proper collaboration among budget preparation participants across the enterprise. This is where consolidation of disparate sets of budget data (worksheets) becomes cumbersome, time consuming and often error prone. This in turn discourages performing adequate iterations of the budgets and testing various scenarios using what-if analysis.

These companies must realize they need to transform this process or they will lose their competitive advantage and experience shrinking market share and deteriorating financial health. Sadly, some of them will ultimately fail.

Going Lean means that all waste must be identified and eliminated. This typically starts in manufacturing and other operational areas of the company but must extend to all functions of the enterprise, including marketing, sales, finance and accounting. We saw that Lean also very much applies to non-manufacturers and even companies that do not buy, store and sell inventory.

How can waste be eliminated?

To practice Lean Planning, Budgeting and Analytics, you should implement a process supported by a software solution designed for such lean and streamlined operations.

I’ve been fortunate to work with Budget Maestro from Centage Corporation. To me, this is the ultimate Lean Planning, Budgeting, Re-forecasting and Analysis system, especially appealing for SMBs (Small and Medium Size Businesses).

I particularly like that Budget Maestro is delivered (either on premises or in the Cloud) as a turn-key, self-serve solution. This means that all business logic and accounting rules are already built into the solution and there is absolutely no programming needed when implementing the system or when making changes to the budget model. With Budget Maestro there are:

  • No formulas
  • No links
  • No macros
  • No other custom programming
  • No expensive external consulting work

Not only can you implement this system in days or weeks instead of the usual months or years, you can maintain the system in house, and as stated above, with no or minimal help from outside consultants, while delivering the exact, up-to-date data that management needs, regularly, consistently and quickly.  This means that data can be immediately evaluated and decisions made in response to current financial events or anticipated results as communicated by future-period forecasted financial statements and other reports.

How Lean Accounting and Finance processes can support manufacturing or other company operations:

A Lean Accounting and Finance operation, once implemented, tested and perfected (recall that the Lean concept requires continual monitoring and improvement of processes in all areas implemented), must reduce waste in finance and accounting while more importantly supporting all other areas in the company and especially manufacturing.

Finance, freed from the tedious maintenance of a cumbersome planning and budgeting process, and with a robust analytics process, can finally focus on analysis without sacrificing quality or delivering key data to decision makers far behind the conclusion of business and accounting events.

Finance and accounting can now devote much-needed time to establishing metrics and KPIs (Key Performance Indicators) that must be used to measure current performance and establish future goals, communicated through an agile plan and budget. The ability to use such metrics and KPIs by employing Drivers, Based Upon Sources and Methods can make the difference between an effective plan/budget with integrated, real-time analytics, and a cumbersome, hard-to-maintain and error-riddled system, discouraging users and managers from making changes, trying different scenarios or experimenting with multiple sets of inputs.

Since analysis of actual accounting data versus budget can be performed as soon as an accounting period is closed and is very quick and simple to perform, this approach encourages finance to consistently monitor actual results and apply necessary changes or perform reforecasting, almost in real time. Management is now equipped with all the right data to make timely, informed decisions. These constant improvements are a very powerful concept of Lean and now can be practiced in finance using a software solution such as Budget Maestro.

And best of all, whether your organization is practicing Lean or is in the process of introducing these concepts, or perhaps not even contemplating Lean at this time, using a solution like Budget Maestro is a captivating example of how planning, budgeting and integrated analytics can become a streamlined, agile and effective process, without the common waste and limitations inherent in many other solutions.

To me, this is the ultimate Lean solution in the CPM (Corporate Performance Management) space for SMBs. You can use a fraction of the time previously spent on programming and troubleshooting to perfect your plan and budget and use the rest of your time to perform all the analytics you desire while supporting operations with the data and metrics they need to improve.

Who says that accounting and finance must always be overworked?

Do You Practice Lean Processes? How About Lean Accounting and Finance? – Part 1

lean accounting

See what Lean accounting and finance can do for your company

We’ve heard the buzzword “Lean” as it pertains to an organization’s transformation into a more efficient set of operations for a while now. Often perceived as radical, it promises great results and endless opportunities for incremental improvements.

The concepts originated in Japan, led by an extraordinary transformation at Toyota Motor Corporation, with its Toyota Production System (TPS), started in the mid-to-late sixties and perfected in the seventies.  The premise of TPS is continual improvement in all areas of the enterprise with the goal of increasing efficiencies and reducing waste while always maintaining respect for workers in all areas and on all organization levels.

While the Lean transformation lends itself best to manufacturing operations, its concepts apply to non-manufacturing industries as well, so if you aren’t a manufacturer, please don’t stop reading here.

The reality is that most companies in the US don’t practice Lean, at least not yet. The main reason is lack of discipline and proper direction from upper management, even though many US companies that implemented Lean report remarkable changes in all areas of the company, evidenced by improved financial statements and cash flow.

Another reason Lean transformations aren’t as popular as they should be, is that it really only works if you sustain the effort. Many of the failed attempts at Lean are attributed to not being able to maintain the Lean mindset and make it work consistently across the entire enterprise.

A popular goal sought with first Lean implementations is inventory reduction. The idea is to reduce inventory on hand and only bring in material and parts that are needed for customers’ orders or for a specific forecast, if the company makes products to stock. The result is higher inventory turns (I’ve heard of manufacturers achieving 15-20 inventory turns a year) and noticeable improvement in cash flow.

To make a Lean transformation effective, companies should also transform other areas in the organization, particularly their accounting and finance departments. Borrowing concepts from manufacturing, accounting and finance departments can also eliminate a lot of waste and focus only on value-added activities.

Each company should evaluate its own accounting and finance workflow. When activities that don’t add value are reduced or eliminated, accounting and finance personnel can focus on collecting and translating data into highly informative and useful reports that managers can really use—instead of the monthly or quarterly report packets (more like stacks of paper) that managers hardly even skim through without getting confused.

Of the many opportunities to transform accounting into a Lean organization, some companies find that doing away with vendor invoices for inventory purchases results in great savings in time and other resources. They simply rely on internal control over the purchase order process, and by using blanket POs with agreed-upon prices and release dates driven by true demand, they depend on the receiving process that automatically vouchers these receipts, which creates AP transactions that are paid according to vendor terms. The three-way match, vouchering and posting to AP of individual invoices is eliminated. Similarly, other areas in accounting can be streamlined in a Lean environment.

It’s hard to discuss Lean accounting and finance without mentioning the planning, budgeting and analysis processes, a core set of functions usually owned by finance. What is a Lean budget? Can that work even if the rest of the organization isn’t Lean? Can the process be called Lean Budgeting?

Erroneously, to the uninitiated in Lean concepts, when thinking of Lean Budgeting, the first thing that may come to mind is taking shortcuts in strategic and operational planning or perhaps reducing the number of budget iterations and their approval process. The truth, however, is that Lean Budgeting means only to reduce or eliminate wasted time and resources in the budget preparation and approval process. Of course, with reduced waste, certain pieces of the budget can be reduced while improving profitability and overall financial results.

Strategic and operational planning is the most important phase in the budget process and should never be compromised, even when transforming the company to a Lean environment. However, many existing planning and budgeting processes and their reliance on traditional technology promote much waste and complexity that can be eliminated or greatly reduced with a proper Lean implementation.

Waste in planning, budgeting and analytics processes may include:

  1. Spending an inordinate number of hours developing a model that requires programming of formulas, functions and links to other worksheets or workbooks files.
  2. Endless troubleshooting of budget models for errors resulting from bad or missing formulas, broken links or other issues which stem from unsuccessful changes or additions to the model.
  3. Excessive time spent by finance to create modified versions of the base budget or “what-if” versions in response to requests by management.
  4. Unnecessary wasted time in analytics, especially the monthly analysis of actual results against the approved budget for the period.
  5. Use of a “Zero-Based Budget” except for rare occasions where required and justified.
  6. Limited collaboration among budget participants using traditional, cumbersome solutions where consolidating the budget is extremely inefficient and time consuming.

If every iteration of the budget requires many hours or even days of work to recompile the budget and its derived forecasted reports and financial statements, you are not practicing Lean Budgeting!

In the next installment in this series we’ll learn how a company can achieve true Lean Budgeting while supporting manufacturing and other areas of the enterprise and providing real insight to management.

The Power of Software Integration


ERP Software Integration
Maximize the impact of your CPM software with automatic integration to your ERP

Users of popular consumer software applications, especially mobile ones, are used to performing daily tasks such as scheduling activities on their calendars in their e-mail applications, either from their home or office computers, or most often, from their mobile devices.  In fact, many take the results of these activities for granted, not giving much thought to how data moves from one application to the other.

With a push of a button, or, more accurately, a touch of the device’s screen, your e-mail meeting invite creates an entry into your calendar with all needed details. These activities would not be possible without integrating two or more applications, either locally or in the cloud, to create a seamless workflow, with minimal user data entry, promoting accuracy and completeness of data possible only with automation.

Business software applications are no different. Their users perform daily tasks such as processing receipts of inventory into warehouses, guided by existing and approved purchase orders and suppliers’ packing lists with bar-coded bags or boxes of items that upon scanning automatically update inventory records, PO records, inventory sub-ledgers and GL control accounts. Posting a customer payment on an open invoice causes this invoice balance to be eliminated or reduced, while automatically updating the AR sub-ledger and the GL control account balance.

These automated activities are possible because of integration between the inventory and accounts receivable programs in an ERP solution and the system’s general ledger. There is minimal data entry users must perform, and with that, accuracy and completeness of data and other information improve dramatically.

CPM (corporate performance management) software is a good example where integration is important in achieving the desired results, with minimal user interaction and no data input errors.

Here, the data from the ERP or accounting software is integrated with the CPM solution and periodic account balances, or even transaction activity, in each period are automatically provided. The planning and budgeting software is integrated with the reporting or analytics solution, and both the actual and budgeted data is displayed and analyzed as soon as a financial period is closed. Gone are the days of exporting GL data to a text file that must be uploaded to the CPM solution, mapped to the solution’s databases’ various data fields, and then independently mapped to the analytics software to obtain the desired reports and formatting.

A good example of integration between popular SMB (small and medium-sized business) GLs and a CPM solution is Centage Corporation’s Link Maestro. With Link Maestro, a user can obtain all GL account balances, and even transaction activities, for many popular GLs.  The process is entirely automatic and accuracy and completeness of data is guaranteed every time the process is run.

Once the GL data is in the Budget Maestro CPM application, analysis can take place immediately using Analytics Maestro. Actual accounting data and budgeted data automatically flow to the analytics application and are displayed in the predetermined format for every accounting period. This, again, is possible with integration–two software applications, the ERP and Budget Maestro, tightly integrated by Link Maestro.

Now even SMBs can achieve that level of automation afforded by integration, previously available only to very large organizations and through lengthy and expensive customization of the company’s software. Let your computer and software do all the tedious work in an error-free environment while you spend more time analyzing the data which ultimately allows management to make timely and informed decisions.

A Reasonable Approach to Headcount Forecasting

head count forecasting
Don’t make the process more complicated than it needs to be

A while ago I saw a discussion on centered around the topic of headcount forecasting and people looking for advice on implementing a super-powerful model (in Excel, of course) to allow their finance and HR departments to forecast the need for employees in various areas of the business and when those employees would be needed.

HR needs this information in order to plan their recruiting efforts; when to advertise for open positions, when to schedule interviews and several other activities that must be planned in advance in order to successfully hire the most qualified persons for all open positions.

Finance, on the other hand needs this forecast in order to budget payroll and payroll related expenses. These forecasted expenses, an integral part of every corporate budget, must be reasonably accurate and reflect growth and any changes contemplated and communicated through planning and budgeting.

Designing and implementing a headcount forecasting model is no trivial task using a common spreadsheet application such as Microsoft Excel. In addition to the many global assumptions and a myriad of formulas, functions and links, the model must be capable of expanding as needed and be sufficiently documented so any reasonably skilled Excel user can take over and continue to maintain it. Another requirement, hardly ever present in most companies, is periodic audit of the model plus the need for a set of internal controls, designed to mitigate potential risks to the model resulting from formula errors, broken links and other assumption related errors.

This is no different than using spreadsheets to build other pieces of the corporate plan and various budgets, but may actually be even more challenging due to the dependency of the headcount on other areas of the plan, such as revenues, inventory requirements, etc.

For example, in a manufacturing environment where the direct labor force represents a large percentage of the total headcount, the number of production employees is directly dependent on sales budgets, or more accurately the making of inventory in the budget periods driving sales revenue, since making of inventory is the activity that requires the labor force.

Is there a reasonable approach to forecasting headcount?

The only reasonable approach is to abandon the use of spreadsheets for all kinds of forecasts that are incorporated into corporate budgets. Many organizations, even SMBs (Small and Medium size Business) have already come to the realization that use of spreadsheets for budget work is a bad idea. This has been covered here in this blog in much greater detail Replace Excel with a Dedicated Planning, Budgeting and Analysis Solution and Forecasting a Balance Sheet in a Spreadsheet World.

Forecasting headcount is no different. You need a system with built-in business logic, giving you the ability to make the headcount dependent on other factors (e.g., sales forecasts and their dependent inventory requirements).

By using existing, company developed KPIs, such as production employees per unit of revenue (e.g., number of production FTEs per $1MM in gross sales of manufactured inventory, number of FTEs per $1MM of inventory (at cost), produced in a period, etc.), you can link your needed manufacturing headcount to the sales forecasts. If required, inventory production can be made dependent on sales forecasts, allowing you to have a forecast of production FTEs in each period of your budget.

A popular SMB software solution, Budget Maestro from Centage Corporation can accommodate all these needs and will allow even a small organization to forecast its employee headcount requirements with tight dependency on inventory production needs or any other drivers applicable to its business. Of-course, the entire corporate budget should be prepared using this software solution, and there is not a single formula or link that must be provided by the users since all business logic and accounting rules are already built-in and ready to use Business Logic and Accounting Rules Built into the Budget.

With such compelling reasons to abandon spreadsheets in favor of a dedicated solution in the preparation of a corporate headcount forecast and all other budget elements, the whole process can be moved into an environment specifically designed for this purpose.  Struggling to scale and maintain a set of unwieldy spreadsheets and with limited output usefulness will become a thing of the past.

Make a Conscious Effort to Forecast Your Financial Position

forecasted financial statements
Why SMBs Need to Pay Closer Attention to their Forecasted Balance Sheet and Use Good Analytics.

Most small and medium size companies (SMBs) do not have the resources that larger enterprises have.  Their accounting and finance functions are often performed by the same persons and strategic and operations plans and budgets are usually done once a year, before a new fiscal year is about to begin and without too much attention to analytics.  Quite often, the planning and budget work is not done and monitored year-round.

Companies that perform well during the year, and especially those that enjoy a string of successful years with moderate to strong earnings have a tendency to fall into a state of complacency, that is, they seem to pay less attention to how their actual results compared with budgets and in many cases do little to make decisions based on actual results and their corresponding budgets. Many simply do not have the proper tools to be able to build a well-planned budget and continually monitor actual results and compare against the budget as actual accounting data becomes available.

Many SMBs still use spreadsheets in their budget preparation process, which limits their ability to properly plan and develop a budget that can be maintained throughout the year.  They also don’t have the right tools to gain much needed insight into their future financial position.

Those that happen to be on the right track and perform well may seem content with not making changes, although we see more and more such companies actively looking to change the process to a purpose designed solution, and recently to a more contemporary approach with a software solution that behaves similar to an actual accounting system, one that is able to deliver a full set of forecasted financial statements which are fully synchronized to one another and to the underlying budget.

But what happens to these companies when after several years of relative success things change and their performance starts slipping?

Unless the organization’s finance function is sophisticated and employs both experienced persons and especially sophisticated analysis tools and a good data collection system, these companies may unknowingly start drifting into an unhealthy financial position, a process that in many cases can take as long as 2 or more years.

Managements are certainly aware of unprofitability; after all, they get periodic profit and loss statements that show, on an accrual basis, that their net profit is negative.

Certain changes are usually made in order to return to profitability, but these changes, often including employee layoffs, are seldom the solution to the problem.

If the company uses a credit line or other forms of debt to finance operations, it is not uncommon to see this credit line or other debt actually finance losses. The company may be perfectly compliant with their debt obligations, and make all required loan payment.  However, in the background, their financial ratios keep deteriorating and in the case of financial loan covenants Forecast and Monitor Your Loan Covenants Compliance, there comes a time when one or more financial covenants go out of compliance, often discovered by the banker before the company has a chance to calculate it.

From my experience, one of the most important aspects of planning, budgeting and financial forecasting is the ability to forecast the Balance Sheet with reasonable accuracy, for the duration of the budget. The forecasted balance sheet must be as accurate as the budget itself and update in real time as changes are made to the budget Why You Must Forecast Your Balance Sheet Part 1 and Part 2.

Companies that have such forecasted Balance Sheets (and forecasted Statements of Cash Flows which are constructed from Income Statements and Balance Sheets) must pay close attention to how certain values change along the budget timeline. Since a Balance Sheet represents the financial position of the company (I often use the term Financial Health), using analytics tools can quickly reveal key financial ratios, financial loan covenants calculation results and other key data and how they behave and change during the budget timeline.

When you look at different versions of the budget or use several “What-If” scenarios, each of which produces a different set of forecasted financial statements, you will clearly see how the financial position of the company is affected by these various budget versions or “What-If” scenarios. This is critical to perform, so you must properly implement capable budget and analytics solutions and use them year-round.

Using analytics, coupled with a solid budget, one that produces accurate financial statements in each budget period will make all the difference between approving a budget that may not just be unattainable, but also be detrimental to the financial health of the company, versus one that is realistic, sensible, and constructed in a system that was carefully designed and implemented for the job at hand. Do this, and you will align the budget with your company’s actual capabilities.

The best news is that everything I am describing here can be achieved by even smaller companies in the SMB company space. My experience with Budget Maestro by Centage Corporation shows that even with a modest licensing and implementation cost, a smaller (or larger) organization can achieve the goals presented in this blog with a surprisingly short implementation time and with good results the first budget year it is used for.


Impressions from the First Budget Maestro Annual User Conference

budget maestro

A memorable experience and confirmed realizations

I just got back home from the first Budget Maestro Annual User Conference. The event took place at the beautiful Hotel Marlowe in Cambridge Mass., overlooking the Charles River with the Boston skyline in the background. With a hot, but otherwise beautiful weather, the conference was off to a great start.

With customers, both veteran and new in attendance I recalled when I first became a Budget Maestro user.  It was a 1” display ad in CFO magazine that caught my eye. At that time, I was looking for a solution to assist me with the preparation of monthly forecasted balance sheets for a new venture capital opportunity in the hi-tech industry.

I needed to use my forecasted monthly P&L sheets and produce an accurate and complete set of balance sheets, one for each budget period. No software solution at that time could deliver that and relying on Lotus 123 (the go-to spreadsheet of that era) was not an option for many reasons that we all know now, Replace Excel with a Dedicated Planning, Budgeting and Analysis Solution and Is It Time to Switch from Spreadsheets to Business Budgeting Software?.

Budget Maestro delivered what I was looking for. While being rudimentary, with only a fraction of the features it has today and with no analytics module, it got the job done. It wasn’t called Smart Budget since the term didn’t exist back then but it had some of the elements of a Smart Budget with its built-in business logic and accounting rules.

At the time of my purchase I had no idea the company had only two employees.  Somehow, the person I talked to was able to communicate a message that eventually evolved into the message I now use both on this blog, Planning, Budgeting and Forecasting – Why Tradition May Be Dangerous – Part 1 and Part 2 and whenever I share it with customers or anyone in finance looking for a budgeting, forecasting and analytics software package.

The conference was packed with informative sessions, powerful customer stories and testimonials and new product announcements. There was a great deal of entertainment too and a good time was had by all.

There were, however, two major areas that left a strong impression on me. First, meeting many of the customers in attendance and listening to their stories and experiences with implementing and administering a budget solution in their companies validated that the Centage approach to budgeting, forecasting and analysis is correct and no other solution in the SMB space (Small & Medium size Business) can deliver what Budget Maestro can.

Customers shared their positive experience with Centage employees, including training, customer support and other personnel and how pleased they were with the overall implementation experience and putting the product to good use within a short period of time.

It was refreshing to learn that more customers are using the forecasted balance sheet and statement of cash flows, a lot more than in past years. I listened to customers discussing their needs and challenges in implementing Budget Maestro and what they were hoping to accomplish next with the software and offered suggestions and tips on how to best utilize this solution.

Second, I had the opportunity to meet new company employees and reconnected with people I already knew at Centage. They all shared their experiences of working at Centage and the common theme was always providing the best possible customer service and support experience while enjoying the work environment and connecting with their coworkers. It was apparent that the company has matured to a point where I believe it will be propelled to the forefront of its industry.

When making my initial purchase of the software license I had no idea it would all lead to such a great event and a maturing company with an outstanding product line. I was simply looking for a solution to a specific but big challenge I had at the time. All that has changed now and given what I see, Centage Corporation is poised for great success and is sure to become a force to be reckoned with.

What does the Annual Budget Mean to you?

Close-up of business documents lying on the desk, office workers meeting in the background

How different functions in the company have different views on the process

In all but the smallest companies there are quite a few people involved in the annual budget preparation.  While finance generally owns the process, every division and department in the company has something to do with it.  As such, many employees are familiar with at least their piece of the process and even though (and admittedly) many loath these activities, they all have their own unique point of view on the process and its purpose.

Let’s start with division or department heads.  These are people generally responsible for the P&L in their immediate area, be it a department, division or profit or center.  To them, usually, the process starts two or three months prior to the end of a fiscal year.  They are given templates of revenue and expenses to fill out and return to finance or the budget administrator(s) within the finance group.  Some companies require a zero based budget, meaning every expense line must be individually entered and justified – a lot more work for department heads, but we would assume they are accustomed to doing this.

To them, the budget represents the anticipated performance of their business units, such as sales, expenses, profits and losses communicated through the budget; perhaps proposed growth through release of new products and services, cost savings, etc.  Usually, their budget preparation responsibilities end at their department level.  During the budget year they try to perform within the budget constraints hoping performance falls within budget or perhaps even exceeds it.

In companies where periodic analysis occurs, these people are questioned when their business unit’s performance exhibits variances from the budget, and operational changes as well as reforecasting often occur.

The budget administrator (more than one in larger companies) is concerned with releasing budget worksheets or templates to budget participants.  They also collect these data and incorporate them in a consolidated corporate budget book.  If their company still uses a set of spreadsheets (which we all know by now is a very bad idea) in its budget preparation process, they are in charge of maintaining these spreadsheets, the programming of formulas, functions, links and macros, and most notably, continually troubleshooting these spreadsheets.

If the company is fortunate enough to be rid of their spreadsheet-based budget, these budget administrators are focused on maintaining the budget model, releasing and collecting electronically filled-out worksheets from the various budget participants, consolidating the many budget sheets into a corporate budget book and handling all revisions and iterations of the budget until it is approved.  Then, some may perform analytics functions, usually based on their system’s capabilities and company mindset.

The VP or Director of Finance, or in smaller companies the Controller is involved in budget reviews and modifications throughout the budget preparation process and then, hopefully, in reviewing the periodic analysis performed during the budget year. Traditionally, their primary concern is accuracy and completeness of the data, and understanding variances of actual performance from budgeted numbers.

The company CFO, together with the CEO and Board of Directors are mainly concerned with the completion of the budget preparation process and in its approval, as well as periodically reviewing analysis results and questioning performance of the company in response to variances from the budget.  In most companies with a traditional purpose designed budget and analysis solution there is not much more they can do.

However, there is a lot more they should do.  The CFO should always forecast the future financial position of the company (a.k.a. the future financial health).  This can only be done through obtaining a complete and accurate forecasted Balance Sheet, one that is synchronized in real-time to the forecasted Income Statement which is always derived from the underlying budget.  We already know that next-generation budget and analytics software solutions such as Budget Maestro by Centage Corporation ( were designed to do that.

Next-generation budget tools are used on all levels of the budget preparation and analysis process; each user category described above is a participant in the system; each has a set of responsibilities and access to the areas most appropriate to their function in the organization.

Budget administrators no longer have to struggle with unwieldy budget models that never work properly and where different pieces are broken at any given time.  They can now focus on properly administering the process, collecting reliable and timely data from budget contributors, compiling reports and generating output that can be relied on.

CFOs can finally have the tools they really need.  Through smart budgeting technology they have access to a budget that is an extension of their company’s actual accounting system.  They can now see what their company’s Balance Sheet will look like in the future and test more than one version of the budget to see the effect on the forecasted Balance Sheet.  Most importantly, they can initiate changes in response to actual results compared in real-time with the approved budget.

CEOs and companies’ Board of Directors can finally rely on the budget and analytics processes to be able to ask the right questions and respond much quicker to actual business changes.  This also extends beyond the company to shareholders, customers and vendors, all indirectly benefiting from the results of a well-executed and managed budget and analysis process.

Why Out-of–the Box Implementation and Integration is Important for SMBs

ERP related concepts in word tag cloud isolated on black background

The solution should allow users to do most of their own implementation and setup with minimal outside help

Two of our larger clients went through system conversions in the last five years in the hope of implementing an all-encompassing enterprise ERP solution.  What was supposed to be a straight forward project with well-defined deliverables and a reasonable timeline turned out to be the exact opposite for both companies:  Major budget overruns, long delays in achieving practically every project milestone and seemingly endless amount of customization and software code modification in order to accommodate everyone’s needs.

One thing in common to both implementations was the fact that all planned integration of the new software with existing pieces of software and sub-systems still had issues after the implementation was complete and some still don’t work as expected to this date.

What was evident was the large number of outside consultants and the extra stress on company employees having to interact with the consultants and participate in testing and other project activities.

Even though our firm was not directly engaged in these implementations, our work in helping with consolidated financial statements and disclosures was greatly impacted as the data available to us to do our work was at times unreliable and insufficient due to poor integration and questionable report writer scripting.

I imagine many readers of this blog don’t find this experience particularly unusual.  Most people with enough experience in accounting or finance, working for even mid-sized organizations experience this from time to time, especially with company acquisitions, mergers and other drastic changes to their business organizations, where existing systems are determined to be insufficient or lacking in certain areas, or perhaps not able to deliver on the reporting requirements of management.

Unfortunately, such projects are not limited to only very large companies where there usually is a legitimate need to implement a better solution or perhaps more efficiently integrate existing systems with a centralized accounting and finance package. It is also not surprising that in smaller organizations this can be very taxing on the company and its employees (and indirectly customers and vendors) and will pose a long term financial burden at best.

Often, smaller companies get caught between legitimate needs to improve their information systems, streamline operations and improve reporting capabilities and delivery, and IT and software solution vendors and their partners / consultants who manage to give these prospective buyers bad advice. It usually ends up with the customer making purchase agreements and engaging the vendors in projects that at times seem will never end, all to the detriment of the customer. Once the software is implemented the customer is usually committed to it for a length of time (SaaS solutions) or is so involved in the new implementation and conversion of the old data that no reasonable changes are possible for a long time.

The costs sunk into such projects can be significant, even for a smaller company. In the case of ERP software implementations, I’ve seen consulting costs to fully implement a system exceed the initial perpetual license fee by 400%-500%. In the case of SaaS delivery, although there is no large up front licensing expense, consulting expenses can still be sizable and often exceed the original budget.

Planning, budgeting and analysis software is sometimes as difficult to implement as ERP solutions and the integration to the ERP software accounting GL can be difficult and almost always requires outside consulting.

SMBs should choose to go with a more reasonable approach and maximize the out-of-the-box installation experience, with minimal customization. When it comes to CPM class software for SMBs I really like Centage Corporation’s approach with its Budget Maestro suite. The entire package can be installed by the customer (on premise version) or is ready to implement and use immediately for the Cloud version. With a solid GL link like Link Maestro, many of the more popular actual accounting GLs are available to automatically link to the Budget Maestro built-in GL. The overall implementation time and expense are minimal and you can be up and running and productive within days or weeks and not months or years.

The best part is that users don’t have to give up functionality with this approach because the system was designed to be adapted to almost any business type. With its built-in business rules available to users in every budget area, and built-in, GAAP compliant accounting rules, you get a system that uses the budget to drive all required financial statements in perfect synchronization with one another.

To me this is the best of both worlds: Quick and inexpensive out of the box functionality and immediate integration with the actual accounting system (automatic for several popular GLs, or through an export-import step for all others). This quick, predictable and inexpensive implementation is something I think SMBs cannot afford to not consider.

Why Enter Notes in a Budgeting and Planning Software Application?

Business lady feels pressure working under control of her boss

The little time you spend entering notes and comments will pay generous dividends when you need to refer to these notes

I spent many years in the software industry.  I was not a programmer or software architect but was very close to many of the technical aspects of the business and got to observe some of the good and bad practices used.

One of the worst practices I recall was not entering comments next to program code lines, or not writing clear and sufficient notes to allow both the original developers and other people to fully understand the original code.

This became evident when we lost one of our best programmers, who left for another opportunity.  Although we owned the copyright to the code, every programmer who looked at it could not make sense out of it and although the code was near completion with initial testing of functionality underway, we had to scrap it and start from scratch.  We learned a very expensive lesson:  Enforce the practice of documenting all programming work and minimize the risk of losing your own intellectual property due to negligence and bad work habits.

Computer programming, design and engineering are good examples why notes must be kept, however, many other activities, both business and personal, can use this discipline.

As I gained experience in corporate accounting and finance I started to adopt this concept in my work and introduced a policy that all accounting transactions (e.g., journal entries into the GL) must be accompanied by notes or comments explaining the rationale behind them and anything that would help a reader understand the underlying events that required the entry.  Automated entries from sub-systems are pre-defined and repetitive with built-in comment codes and other data that explain the transactions, but manually entered transactions such as journal entries are not.

I often see journal entries made by clients without any explanations; not even the journal header notes or the one-line text per GL line, let alone the memo field where one can enter a free form text memo, add simple tables explaining the entry, etc.  This feature is available in all ERP and accounting software nowadays and the excuse that they only give you eight characters to record a comment (or file name) does not work anymore.

When you make such journal entries or other financial related data entry such as in putting together a corporate budget you have to ask yourself:  Will I be able to remember what I just did six months from now?  Will I be able to explain my work to managers, co-workers, or auditors?  Will I look at the transaction in a totally different way and maybe even suspect there are flaws in it?  Simple documentation, right next to the transaction will solve all that.  The common excuse that documenting your work will add extra work with no real benefits is not valid.

The real benefits are significant:  For a little extra work you gain confidence that the logic used during the transaction entry will still hold at any time in the future; that other employees and managers will be able to understand your work; that any internal or external auditor will have complete information on the audited transaction; and that your financial statements and internal control over financial reporting will be more robust due to this practice.

In Budget Maestro by Centage Corporation, every area of the software has a notes section, accessible through the Notes Tab on the upper right side of the screen.  Users can enter an unlimited number of individual notes for every budget line in every module (Revenue, OpExp, Personnel, Debt, etc.).  These notes can be filtered by user, date entered or description.

The notes can even contain copied and pasted simple Excel or Word tables.  Files that back up the logic or data used in establishing budget lines can be attached to each note within each budget line.  These files (e.g., Excel, Word) can be directly opened from the notes’ associated files area.  With very little effort you can reveal the data and logic used to create the budget line.

Since Budget Maestro allows users to create complex models using built in business logic, Business logic and accounting rules built into the budget, it is imperative, in my opinion, that these budget lines, many dependent on other data sources, with increases or decreases during the budget year plus other logic applied (e.g., Drivers, Based Upon) be clearly documented.  It will make your work easier and more productive.  You will be able to clearly explain the rationale behind choosing the various logic elements that Budget Maestro offers.  It will make the budget review a lot easier and you won’t get caught trying to figure out what you were thinking at the time these particular budget lines were created.

While it may seem an extra amount of time and effort to enter notes (in Budget Maestro or in any other software application), the benefits are going to be evident the first time you need to refer to one or more of these notes.  Budget Maestro makes it easy to enter notes and associated files everywhere in the application, so use this feature liberally.