Are Financial Planning and Cash Processes High Priorities on Your List?

See what industry experts and companies’ finance executives think

I recently read the results of the 2015 Finance Priorities  survey conducted by the global business consulting and internal audit firm Protiviti which confirmed my observations and experience working with clients in a variety of industries. To quote the first three most important findings, which also represent the top priorities of finance executives:

1.       Finance functions are striving to gain greater visibility toward the “cash” horizon.

2.       Finance executives are placing more importance on strategic planning, risk management, executive dashboards, profitability analysis and other strategic areas of financial analysis.

3.      Finance functions want to manage and improve related processes in a comprehensive manner.  Strategic planning, budgeting and forecasting rank among the highest priorities in the entire study, which demonstrates as intent to strengthen overall corporate performance management.

This clearly confirms that corporate strategic and financial planning is not only essential but also greatly recognized as such by the 372 participants in this survey who are a good representation of finance executives and managers across many industry sectors.

The conclusion is that strategic planning, budgeting and analysis must be an integral process in finance, with its results clearly and timely communicated to executive management, the Board of Directors and certain shareholders.  I am encouraged that the survey participants have recognized this and correctly voiced their opinions.

As the number one finding in this survey indicates, Cash remains the most important component in finance.  It is cash that allows a company to grow and achieve its objectives, but also to survive in difficult economic times.  A company can be very profitable according to its income statement, yet suffer a chronic shortage in cash and lack the ability to meet its cash obligations or finance its basic operations.

As a business owner, CEO, CFO or finance executive, you must be able, at all times, to forecast the cash balance at each accounting period and how much cash will be required in each period in order to meet obligations arising from business expenditures, purchase of inventory, incurring payroll and related expenses, acquisition of assets, loan and line of credit payments and other cash related transactions.  The sources of cash are from customer account collections (AR), borrowings from lines of credit, issuing of long-term debt, selling shares in the company, and from sale of assets.

Since there are many accounting transactions affecting cash every day, its balance will fluctuate during the accounting period and over a period of time you will notice an upward or downward movement of this balance as measured at the end of each period.  Similarly, if you rely on a bank line of credit to finance your operations, you may have a zero balance in your operating account and your line of credit balance will fluctuate.

Whether it’s the cash balance, the line of credit account balance, or any long term loans, you need to know and well in advance what these balances are going to be and whether or not you will have access to this cash and how much.  This is part of a prudent and disciplined planning and budgeting process, every responsible finance organization should employ.

Those who use traditional methods to forecast cash and other budgeted data, by using spreadsheets with their inherent limitations and likelihood of errors, or perhaps, upgrading to a purpose designed planning and budgeting solution that requires users to perform extensive programming and provide formulas, functions and links, have discovered that cash planning and forecasting is not trivial.

The fact is that many organizations are not able to forecast cash, credit line utilization, loan covenants compliance and other key finance ratios and operational KPIs despite the fact they have implemented expensive and seemingly powerful software solutions.

My blog entry titled: “Cash Flow Statement: One of your Most Trusted Tool” demonstrates how the finance organization can obtain a complete and accurate Statement of Cash Flows for all budgeted accounting periods, using the existing planning and budget data.

The second and third findings of the Protiviti survey provide clear evidence that many finance organizations are still struggling with achieving timely and meaningful financial analysis, using both planned and actual data.  This implies that spending money and effort on sophisticated systems may not be the right solution if these systems fail to provide the required output or the outcome expressed as highly desirable in these top three survey findings.

Several of the blog entries on this site are focused on the importance of periodically planning and budgeting and continuously analyzing both actual and budgeted data; good examples are: Why CFOs Need to Adopt Financial Analytics” and A Physical and Mental Health Predictor? A Budgeting Analogy.

I continue to marvel at the accomplishments of Centage Corporation with its Budget Maestro with Analytics product line and have written about this solution and referenced it throughout this blog. The conclusion those familiar with this product must come to after reading the Protiviti survey results is that the Budget Maestro product line delivers and overcomes two of the most common challenges that finance organizations face:

1.      Providing a clear, accurate and complete visibility into the “cash horizon”.

2.      Allowing the construction of a strategic plan driving a financial plan, year after year, and real time analysis into the future, present and past Analysis of Everything.

Having these top priority challenges conquered is no trivial feat. I am glad that a sensible and effective software solution that does just that actually exists.

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