Category Archives: actual data

Maintain A More Accurate Budget Using Actual Data

I’ve been a user of Budget Maestro (www.centage.com) since 2002 and have gone through all the version upgrades and minor updates over the years. What I’m still surprised at is that I still learn new ways to use it and am able to continually improve the function and utility of this application.

I just discovered another way to contribute to the accuracy and completeness of the budget. This uses actual data available from the accounting (and more precisely, the company payroll system).

In most companies payroll is the highest operating expense. This includes salary and overtime pay, bonus pay, holiday pay, payroll taxes, benefits and other payroll related expenses. In manufacturing companies, most of this payroll expense is absorbed into inventory (capitalized as inventory is produced) and is expensed as products are sold.

Different industries experience different amounts of payroll and related expenses, but in all organizations, these expenses are substantial. This implies that budgeted payroll and related expenses are significant component of the overall budget.

What if there was a way to more accurately forecast and budget these expenses? Can the payroll budget be updated in real time, using the actual accounting payroll data?

Budget Maestro has a very comprehensive personnel budgeting module where company employees are entered either individually or in groups of similar work functions. Payroll related expenses are calculated regardless of whether the company has a calendar year or a fiscal year.The correct expenses are automatically posted to the budget and accounted for.

For example, expenses such as Social Security and Medicare (employer portion) stop accruing during the calendar year only to re-accrue at the beginning of the next calendar year. Companies that are on a fiscal year must correctly accrue these expenses and then stop accruing them according the calendar year rules, while reporting them in their particular fiscal year. Budget Maestro knows that from the company calendar setup and will correctly apply these expenses where they belong, no matter what the fiscal year-end is.

While some of the payroll is forecasted based on revenue forecasts by using drivers, there is a large portion of the budgeted payroll that consists of existing employees.

By adding and deleting employees as they are hired and leave the company or when actual salary changes go into effect and other changes take place, the output of the personnel module becomes more accurate and more aligned with the actual payroll expenses.

It is important to note that adding new employees in Budget Maestro following the actual additions into the company payroll system may require adjustments to forecasted employees (which is part of periodically maintaining the budget), however, at any given period in the life of the budget, the majority of the payroll and the related expenses will closely follow the actual payroll expenses with the balance of these expenses determined by assumptions and drivers, following growth or expansion forecasts.

The natural inclination of finance personnel tasked with maintaining the budget might be to dismiss these activities as unnecessary or time consuming, however, we must remember that the planning, budgeting and analytics processes are not just an exercise in numbers or an annual ritual that must be done through tradition or for other unknown reason. Those who follow the sequence of these blog entries surely realize by now that the benefits gained from a complete and accurate set of data and year-round maintenance and analysis are profound.

Only with having complete and accurate data, periodically updated using known data (e.g., from actual accounting trial balance account summaries or account transactional data), cans an organization gain insight into its current and future (forecasted) financial health.  Budget Maestro / Analytics is a tool that helps with these processes and the interpretation of data, but it is the users’ responsibility to make sure the data entered is accurate and complete.

This payroll expense forecasting is a good example of how a company can maintain and report a very large portion of their expense budget with confidence and accuracy.