Category Archives: forecasting

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 Proformative.com 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.

 

Should I Forecast my Inventory Requirements?

Why having the ability to plan inventory needs is important.

Inventory is one of those things that you never seem to have the right quantity of.  You either have too many of certain items in stock, or you constantly get caught not having sufficient quantities of other items that for unknown reasons generate customer demand in inverse proportion to the stocking levels of these items. What to do…

Play it safe and keep higher stocking levels, usually done with increasing the minimum stock quantities or establishing safety levels for certain items, and you are unnecessarily tying up cash in inventory and using additional storage space that could be put to better use, both of which having a negative impact on finances and operations.

Only purchase minimum inventory levels that you know will be in demand and you will get caught in shortages of material, parts and other finished goods your customers may be looking for, often not accepting your proposed long lead times. The result is frequently losing sales to competitors who have a better optimized inventory system or perhaps more sophisticated purchasing rules and policies.

It’s been said by many people that maintaining the right inventory levels is more of an art than science. At a minimum it requires experience and tremendous discipline in managing, tracking and re-ordering inventory items. This is also true for in-house manufactured items.

Whether inventory control is an art or a science, it still requires a well designed and implemented inventory control system, usually incorporated into the company’s ERP software solution. A warehouse management software application can also be employed and be part of an integrated enterprise software.

MRP (Manufacturing Requirements Planning) is a very popular software application, also part of an ERP implementation, which looks at customer demand (as evidenced by entered sales orders) and recommends, using business rules and other system settings, when to replenish certain inventory items, how many to purchase; suggests vendors to purchase from and more. It can also suggest processing quantities of in-house made items, when to start production and what materials must be purchased for these proposed production work orders.

MRP alone cannot be the only tool to forecast inventory needs, as it only takes into consideration existing customer demand. With the assumption that an annual budget and periodic reforecasting of sales and expenses exists, the budgeted sales imply that certain inventory items, either purchased or manufactured, will be needed in certain periods of the budget year. These will require procurement of materials and finished goods as well as scheduling labor and work centers in order to meet the sales forecasts. The output of this budget and reforecasts can be an additional input to the MRP system where in-house sales orders can drive MRP to perform as if customer demand already existed. In this setup, products shown in the budget will drive the “make to stock” process, anticipating customer orders.

For those who use Budget Maestro published by Centage Corporation, and for anyone in SMB (Small and Medium size Business) who is looking to implement an all-encompassing budgeting and planning solution, the sales module provides a powerful inventory option where inventory needed to fulfill sales can be planned using revenue item forecasts.

If Inventory is enabled in the revenue line properties, one can enter the beginning unit quantity, indicate whether or not Budget Maestro will replenish the inventory required by the sales forecast and if so the Min / Max replenishment levels as well as the order quantity multiples. Another nice feature is the Lead Time attribute that can be set specific to each inventory item and will assist the system to automatically calculate when these items must be ordered.

Although this is not a true and complete extension of the MRP software into the budget periods, Budget Maestro allows its users to forecast their inventory needs based on forecasted revenue in the sales module. As these revenue forecasts are updated, the inventory requirements will follow these revenue forecast changes.

As is always the case in Budget Maestro, every change you make in the model will cause all system generated forecasted financial statements to change accordingly. For example, as revenue line amounts or spreads are adjusted, inventory valuations of all affected items will change on the balance sheet (i.e., total inventory valuation will reflect the specific changes in individual inventory items affected by the budget update). Of course, specific reports pertaining to revenue forecasts can be produced independently from financial statements and greater detail of revenue items can be displayed.

Inventory forecasting is hard to do but given the tools we have at our disposal I think it would be wise for every Budget Maestro user to take advantage of these features (available in the advanced version) and put them to good use. It will certainly take some of the guesswork out of the “art” part of inventory forecasting.

Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planningfinancial forecastingfinancial consolidation and reporting processes. For more information, take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.

 

Planning, Budgeting, & Forecasting: Why Tradition May be Dangerous – Part 2

Be open minded and explore opportunities for change

In the first part of this blog article we looked at the traditional approach to planning and budgeting and recognized a number of flaws, regardless of how sophisticated some of the modeling capabilities of several of the leading solutions were.

This raises a fundamental question:

Is having an infinitely complex model with unlimited reporting capabilities but with high maintenance costs and dependence on outside consultants and with no ability to really gain insight into the future financial health of the organization superior to having a somewhat less capable modeling solution but one that is user maintained and with no modeling formulas, functions and links, one that automatically provides management with a Balance Sheet and Statement of Cash Flows that are always  synchronized in real time to the P&L and its underlying budget?

This is a very long question but in reality it is a very simple one.

  • What are management’s priorities?  
  • What is really important (or should be) to them?  

As the title of this article implies, relying on older, traditional methods can actually be dangerous to the company and its management since it can mislead them to make incorrect decisions when there is no real visibility into the company’s financial future.

Furthermore, the few applications that claim a forecasted Balance Sheet can be programmed may mislead users who desire such a report and perhaps even rely on it. As has already been discussed in this blog, in order to be able to deliver a complete and accurate Balance Sheet for all budgeted periods, the planning and budgeting software must have a built-in GL, just like its accounting software counterpart, Why have a General Ledger in a Budgeting Software?  To this date, I have not seen a planning / budgeting software solution that has such a GL by design, except for one application, Budget Maestro  from Centage Corporation.

System Generated Balance Sheets & Statement of Cash Flow

I cover a lot of my experiences with Budget Maestro in this blog. I feel very fortunate to have found a solution that is 100% user maintained, free from the worry of programming and managing endless sets of formulas and links, yet a solution able to reasonably model any type of business with very few exceptions. The real bonus I get with this software is the system generated Balance Sheet and Statement of Cash Flows that are automatically updated in real time with every change in the budget. With these capabilities come many additional noteworthy benefits as you can read in this blog, such as:

Forecast and Monitor your Key Financial RatiosForecast and Monitor your Loan Covenants ComplianceHow much of your credit line can you tap? and Generate Accurate Forecasted Financial Statements

Budget Maestro may not be the best fit for a Fortune 100 company, but it is certainly perfect for the many SMBs (small and medium businesses) in search for a way to better manage their organizations with greater insight into their financial future. I urge you to be open-minded and see how a traditional budget and analytics process can be transformed with this unique solution.

Planning, Budgeting, & Forecasting: Why Tradition May be Dangerous – Part 1

Be open minded and explore opportunities for change

Being part of a consulting firm in the area of accounting and finance I frequently get solicitations by phone and e-mail from vendors of accounting and finance software applications. These are vendors of accounting software, ERP applications, fixed assets management software, manufacturing MRP and other solutions, and of course vendors of corporate budgeting, planning and data analysis software, a category I like to associate with CPM (Corporate Performance Management) or EPM (Enterprise Performance Management) software, both of which generally used by the finance function working with company existing (actual) data and with forecasted or budgeted information in an attempt to arrive at an understanding of enterprise performance as measured against exiting goals and plans.

Planning, Budgeting, & Forecasting With CRM Software

Recently I had numerous contacts, both by phone and e-mail, with sales and sales support representatives from several well-known vendors of CRM software, specifically as pertaining to the functions of planning, budgeting, forecasting and analyzing data. I was intent on understanding why their solutions were beneficial to their customers and the real strengths of their product offerings in providing those benefits. I was also interested in learning how their approach allowed organizations to gain insight into their financial position, past, present and future and especially on how they were able to deliver future period forecasted financial statements and whether all statements were fully synchronized with each other and with the underlying budget.

As I expected, all of these applications were quite capable of setting up a corporate budget by importing static data from numerous reporting entities and by constructing a financial model that relied on historic data plus assumptions and application of a variety of formulas and functions, linking different worksheets, performing allocations and using drivers to arrive at a consolidated corporate budget.

A few of these applications were featured a large number of dimensions in modeling the business and its data, allowing a seemingly endless number of analysis options.

All of these software solutions either had a direct interface to the actual accounting GL (requiring custom programming) or indirectly via a two-step export-import process of actual accounting results, such as GL account balances and even detail transaction data.

CRM Systems Come Up Short on Planning, Budgeting, & Forecasting Tasks

All the presentations I watched and the marketing and technical material I received were very impressive and highly polished, but on further inquiry it was disclosed to me that each implementation required a varying amount of setup work, usually performed by vendor trained personnel or outside, independent consultants.

This implies additional, perhaps significant, costs and also longer implementation timelines. Changes to the model or any part of the implementation often requires contracting the original vendor or an authorized third party. Since very little can be done in-house, I imagine only a few changes and improvements to the implementation are actually done beyond the original setup. This does not encourage users to keep up with the ever-changing market and economic conditions. High costs may be another deterrent.

What struck me most was the fact that none of these software vendors provided complete and accurate financial statements beyond the traditional Income Statement. They all claimed they could program a forecasted Balance Sheet and a Statement of Cash Flows, but these statements were always going to be modeled, using high level formulas and assumptions and always requiring maintenance with every small change in the budget.

None of these statements are synchronized to the income statement and to the underlying budget for the simple reason that none of these software solutions have an integrated GL where budgeted transaction data can be processed in a manner similar to how an actual accounting GL operates.

In the second installment of this article we will explore this fundamental flaw and see a better approach to this challenge.

Balance Sheet Forecasting Demystified

A new and sensible approach to creating a forecasted balance sheet

Have you ever wondered why forecasting of the corporate balance sheet is something we seldom see or hear about? Or why many finance managers and professionals dismiss it as an unnecessary activity with no real benefit to the company? The answer, according to my interpretation and understanding, is that doing a good job of forecasting a complete and accurate balance sheet is very hard, probably impossible using conventional tools (traditional CPM tools, spreadsheets, etc.).

A lot has happened since the first attempts at forecasting a corporate balance sheet. In the early days of computerized planning and budgeting the main goal was to forecast the cash flow of the company; cash leaving and entering the company in various budgeting periods (months, quarters, etc.). The focus wasn’t really on generating a “future” balance sheet with all of its components clearly presented, but more on the general accounts, such as cash, and maybe receivables, inventory and payables.

With the available tools at the time, the cash flow forecast was usually not presented in a standard Statement of Cash Flow. Management was able to see how much cash would be required in each period and anticipated cash receipts during the budget year. The accuracy of such forecasts was always questionable, but at the time it was the only method known and used.

Those who have done cash forecasts know how hard it can be, especially if any degree of detail and accuracy is expected. The end result was often far from the actual results but it was a step in the right direction.

Can a Balance Sheet be accurately forecasted? That depends on the definition of accuracy. Under ideal circumstances a forecasted balance sheet can only be as accurate as the income statement forecast. You grossly overestimate your sales in certain budget periods and the forecasted balance sheet, assuming it perfectly tracks the forecasted P&L, will be off too.

Nevertheless, if the forecasted Balance Sheet and its Statement of Cash Flows companion are not synchronized to the P&L and to each other, any degree of accuracy and completeness can never be achieved. This is why most of the popular planning and budgeting software solution used today are not able to provide their users with an accurately synchronized set of financial statements.

In an earlier blog entry, Take Advantage of your Planning & Budgeting Software’s GL we saw that in order to achieve a meaningful set of synchronized forecasted financial statement the software must employ a general ledger at its core and automatically make journal entries in response to budget line forecasted activities (e.g., sales and expenses in budget periods, forecasted capital asset acquisitions, etc.).

Finance executives, finance managers and finance professionals now have a set of tools to deliver a forecasted Balance Sheet and a Statement of Cash Flow that perfectly track the budget and its forecasted Income Statement. These look exactly like the actual financial statements, only represent future budget periods instead of actual accounting periods’ performance.

While I perfectly understand why they did this with the existing tools and software architecture, company CFOs and other finance executives can no longer dismiss this radically new approach as irrelevant or unnecessary. It’s good to see technology innovations finally reaching corporate finance management and embraced by organizations’ leadership teams.

Cash Flow Forecasting Best Practices

It is time to demystify existing misconceptions and practices

Earlier this year I participated in a discussion on the Proformative.com site, titled: Cash Flow Forecasting Best Practices. A Proformative member asked a question which is very common in many finance organizations: What are the best practices when it comes to developing a cash flow forecast model? The person indicated that it was for a large publicly held company with global operations and that they have a comprehensive P&L forecast but struggle with a large and cumbersome Excel model which must be tied to the budget (P&L). This person was looking to start from scratch and build a more robust and manageable model. It was clear that they needed help. Does that sound familiar?

  • Is your company struggling in forecasting its cash flow or is unable to forecast its Balance Sheet and the derived Statement of Cash Flows?
  • Are you using home grown spreadsheets you inherited from a person who is no longer with the company?
  • Have you noticed broken link messages and suspect that other errors may exist in these worksheets?
  • Are you unable to maintain these spreadsheets, or add records without introducing new errors?
  • Are these new additions properly linked into the model?
  • Most importantly, is the output from these worksheets meaningful and reliable?

If you answered yes to any of the first four questions and no to one or more of the last two you probably realize that you must make a change in this process. You also realize that you are not alone which explains why many people responded to this question on Proformative.com and why the topic of cash flow forecasting is popular on that site.

What surprised me was that a good number of the answers were focused on developing a more robust spreadsheet approach to solving this problem, convinced that the spreadsheet is the answer to this challenge; some claiming that they have a model that works and is able to provide a forecast of the cash going in and leaving the organization.

What about the sources of this cash, or the inflows and outflows of cash into and out of each of the three main categories and in each forecasted accounting period? And what about the one or two people who suggested that a cash flow projection can be easily obtained if you have a reliable forecasted Balance Sheet? But how do you reliably forecast a Balance Sheet, complete and accurate and always synchronized to your P&L forecast?  Do you use another home grown Excel model to do that?

As I have written before on this blog and in other forums, Excel is a fine application with a tremendous amount of power and features. One, however, must understand its limitations (and their own limitations in using this application) when using Excel in certain financial processes such as financial reporting, planning, budgeting and forecasting, processes that should always include a Balance Sheet and a Statement of Cash Flows. The blog post titled “Should Excel be Expelled” touches on this idea.

It seems to me that many finance professionals, greatly skilled in using and programming Excel, don’t realize that much of Excel’s apparent power and seemingly endless features may lead to a false sense of believing that anything can be done with the software. This results very often in gigantic models being developed, incorporating many workbooks containing many worksheets each. The risk of having material errors in these models increases exponentially as the complexity of the model increases. To that add the often lack of documentation and rarely used change management controls, even in large organizations, and you begin to see the magnitude of these unmitigated risks.

Even in a perfect world with perfect Excel programming, a robust internal control environment and other positive factors, a cash flow forecast, or more accurately, a forecasted Statement of Cash Flows cannot realistically be modeled in Excel because it requires a complete and accurate forecasted Balance Sheet, perfectly synchronized to the P&L budget model. My blog posts “Can you Really Forecast your Cash Flow?”, “Forecasting a Balance Sheet in a Spreadsheet World”, and “Why you Must Forecast your Balance Sheet(and Part 2), further explain these concepts.

To me it makes a lot more sense to implement a purpose designed solution to accomplish the tasks of planning, budgeting, forecasting and analytics. Many of the blog posts on this site cover this critical set of business processes. Before embarking on new, complex projects, we need to realize Excel’s strengths and limitations, and our own challenge of controlling our desire to solve any problem with this tool.

Don’t Deprive your Company Management of Meaningful Financial Information

Why you must make sure financial information is periodically, timely and properly communicated to those who really need it 

There are many blog posts here that focus on how important accurate and complete data is in assessing the financial health of any organization, past, present and future. I’ve also written on more than several occasions on how critical it is to employ the right tools in analyzing financial data spanning historical periods, the current fiscal year and all future periods presented through a plan and budget.

All these data, when correctly used, can provide insight into the company’s performance and even project the financial direction it is headed in and influence the decisions that management must make along the way, such as:

  • Will the company be able to continue and sustain its growth (given that marketing and sales opportunities are executed according to plan)? Are specific changes needed to achieve that?
  • Will it have the cash required for this growth? Will it require additional financing? When? In what amount?
  • What additional employees are going to be needed? In what departments? When?

Or conversely:

  • Will the company have to restructure its operations anticipating a downturn in the economy? Will the workforce have to be reduced? How? When?
  • Will new financing be required in order to be able to weather this economic downturn?
  • Will selling of certain assets be required? When?
  • Is the company facing new competition? Will it need to change its strategic and operational plans?

There is little doubt that such important decisions must be supported by reliable facts; this is true both personally and in business. Simply relying just on experience, intuition or speculation usually does not work. We all see how even large organizations make poor choices and decisions (this is usually discovered months and sometimes years later). We witness badly executed acquisitions (or acquisitions that should not have been made in the first place) and expansions into new product lines and new territories without proper research and analysis of existing data and business intelligence. We observe decisions that were not based on facts or reliable data, or due to inability to properly read and understand that data because of lack of a structured analytics process or poorly chosen tools for this job.

Yet finance executives and professionals are tasked with providing management with this needed information, delivering presentations that are both complete and accurate and also easy to understand.

I’ve seen organizations that had the need and opportunity to set up financial tools that would achieve analysis and reporting excellence, but decided not to. They were simply too wrapped up in their daily work, period end closes and delivery of internal and external reporting. Added to that was tradition and taking the path of least resistance which was often doing the same thing they have always done and were comfortable doing.

This is when finance leadership, driven by a progressive CFO, Why CFOs Need to Adopt Financial Analytics) can make a tremendous difference. They must break the old pattern of doing what they have always done, usually limited to collecting and compiling budget data only pertaining to revenue and expense items, while frequently not even comparing it to actual results and certainly not in a timely manner. A much more progressive approach, which surprisingly does not take more time or resources to complete, yet affords management the right information they need: Why you Must Forecast your Balance Sheet Part 1 and Part 2, every accounting period and in concert with actual accounting results for each closed period and immediately after each close.

When company CEO’s are measured by their organizations’ results and often are replaced when expectations are not met, it is vital that those who lead the organization are given the best possible view of their organizations’ performance, through meaningful reports and presentations obtained from a comprehensive data delivery system, Analysis of Everything that draws from past, present and future (forecasted) data. With a proper system setup, there is no reason why company managements should be deprived of critical information needed for them to successfully lead their organizations.

Head in the clouds

Get Your Head in the Cloud

An easier approach to budgeting, planning, and forecasting

I recently started using Microsoft Office 365 with both on-premises and web based versions and cloud storage of data, accessible from any computer, anywhere as if the data were stored locally. I must say that after a few days and as my skepticism subsided I began to really like this approach (I have been exposed to web-based software solutions for several years now but only in large corporate environments). My experience with certain web based software applications was far from pleasant and with the not very intuitive user interface where hundreds or even thousands of menu items and options were scattered across many web pages I constantly ran into a serious navigation challenge each time I was logged into these applications.

When I found out that Centage Corporation was offering a Cloud version of Budget Maestro I decided to try it. I was assured that the user interface was identical to the desktop version, and all I needed was an Internet connection. I was sent an e-mail with the download link of the VMWare Client which I had to install on my desktop computer, or any device I wanted to be able to access Budget Maestro from. I downloaded the file and installed the VMWare client and within minutes I had access to the latest version of Budget Maestro that looked very familiar and ready to go.

Then, with a simple copy and paste function I moved all my plan files to the directory I chose on the network and from there I was able to restore each plan into Budget Maestro (Cloud Version). This whole process was easy as all I had to do was copy files in a familiar environment.

Then I installed the VMWare client on an additional computer, my MacBook Pro. Same great experience as before. This time I didn’t have to copy any plan files since everything was already there. Within minutes I was up and running.

Today, when I started Budget Maestro (Cloud Version) I had a pleasant surprise. I was prompted that my plan version was older than the application and whether I wanted the program to upgrade my plan file in order to make it compatible with the latest maintenance release of Budget Maestro. I replied with a yes and within a few seconds my plan was upgraded and I was able to enter it. I confirmed that the cloud version was higher than my desktop one and realized how great it is to always work with the latest release and have my data files always compatible with this release. Now I have to download the latest version to my desktop computer and reinstall the software, a slight inconvenience.

My next endeavor will be installing the client application on a tablet and maybe on my phone, although I can only imagine that using a phone to access Budget Maestro is mainly meant for viewing data and not for serious data entry and editing.

It’s been over a month now and I can’t speak highly enough of this software solution’s delivery method. Now I have the latest version of Budget Maestro always there and one set of data files – always the most recent versions. The user interface is identical to the desktop version – nothing new to learn. There are no IT issues to be concerned with and access is available globally, anywhere there is an Internet connection. I also verified that the software works great with slower Internet connections (lower bandwidth) which is occasionally the case when I travel.

Is It Time to Switch from Spreadsheets to Business Budgeting Software?

Spreadsheets are common in the workplace and are the most used tool for preparing corporate budgets and forecasts mainly in small enterprises, but surprisingly also in larger organizations. With their familiar user interface, low cost of ownership and readily available functions and a powerful formula builder among the many tools these spreadsheets comprise, it is very tempting to use spreadsheets in the planning and budgeting process. This, however, becomes an increasingly more difficult task as companies grow larger, with more complex operations, more product and service lines, as well as more sophisticated reporting needs. CFOs and other finance executives and professionals soon discover that spreadsheets are not the right tool to use in this process for several compelling reasons. Among them are the inability to effectively scale the model without major redesign, the high risk of errors and omissions and of course the inability to generate complete and accurate financial statements such as a Balance Sheet and a Statement of Cash Flows. More and more CFOs are starting to realize that and switch to a software-based business budgeting solution.

Your Company Involves Many Departments

Even small and medium size organizations have multiple departments and often several or more locations, with distinct product or service lines, often organized in dozens or more business entities, departments and cost centers. Each reporting entity is expected to propose and maintain its own management approved budget, while a consolidation of all the individual budgets is performed in the finance organization according to the company hierarchy. This cannot be reasonably accomplished with a spreadsheet due to the numerous individual worksheets and workbooks linked together to accomplish the consolidation. As many finance professionals have experienced, the slightest change to any of these worksheets can wreak havoc in the budget consolidation, requiring tedious troubleshooting and repair of broken links, displaced formulas and functions and dealing with other issues. This can bring the entire budget process to a halt, usually when there is a process completion deadline on the near horizon.

Collaboration Requires Dealing with Multiple Time Zones

With different reporting entities located in different parts of the country or even in different foreign countries it becomes apparent that a centralized database must be used in conjunction with a dedicated planning and budgeting solution. Reliance on a spreadsheet is no longer an option even if there are only a few persons involved with accessing the data files.

Maintaining a Single Production Version

Maintaining document control for spreadsheets is a difficult task in any corporate environment even if there are only a few users of the master budget set of spreadsheet files. It is common to find that multiple persons are working on multiple versions of the same spreadsheet while there is no one file containing the latest data. It is much more preferable to use a database application to perform the planning and budgeting functions.  Purpose designed planning and budgeting applications can allow many users in many reporting entities to be in the same database while simultaneously update data. Review and approval of the budget by finance management is done using one set of data which is always the most current version.

Exceedingly Large Revenue and Expense Budget Lines

As companies grow their accounting and reporting needs become increasingly more sophisticated. An increase in the number of revenue and expense accounts usually dictates a similar increase in the number of revenue, cost and operating expense budget lines. Organizing a large number of budget lines across multiple reporting entities makes the use of spreadsheets impractical. The purpose designed budgeting software with its dedicated database can naturally hold and maintain a much larger amount of data with division of data into logical and functional modules such as revenue and cost, operating expenses, fixed assets, personnel, liabilities and others.

International Operations

International operations add additional challenges when using spreadsheets to create and maintain corporate budgets. One obvious challenge is maintaining and calculating currency translations from local currencies to the functional currency of the consolidated budget. This can be much easier handled in a corporate planning and budgeting software solution where all local currencies are defined and can easily be maintained as they change during the budget preparation period as well as during the forecast period. Other challenges such as multiple time zones, many reporting entities and large and increasing budget lines were mentioned above.

Numerous Product Offerings and Locations

The greater the number of company locations, divisions, departments and overall reporting entries, coupled with a large and increasing number of product or service lines the more difficult it becomes to prepare and maintain a corporate budget in a spreadsheet or a set of spreadsheets. This is a perfect example where finance executives must look for a dedicated budgeting solution with an underlying database, where multiple product lines, across multiple locations, and other data dimensions can be reliably set up and maintained without the worry of constantly updating and troubleshooting spreadsheets.

Government Regulators to Report to?

When a company is required to undergo an annual audit of its internal controls, end-user computing is one of the topics external auditors examine for proper design and effectiveness. Spreadsheets rarely have an internal control framework mitigating the inherit risks that they present. A change management process, as applies these spreadsheets, is very rare and often doesn’t exist which implies that the results produced by these spreadsheets cannot and should not be relied on. A dedicated planning, budgeting and analysis software solution with its built-in logic and pre-defined options and calculations is a much more robust alternative to the use of spreadsheets in this process.

Using business budgeting software such as Budget Maestro™ is inevitable as your business grows. The only question remaining is, how soon?

 Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planningfinancial forecastingfinancial consolidation and reporting processes. For more information, take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.