Tag Archives: Analytics

A New Way to Look at Accounting Data

How a software solution changed the way I look at financial data.

I usually don’t rush out to purchase the latest and greatest technology products; I hardly ever jump on every software or hardware upgrade that becomes available. I just seem to be happy with the software tools I use in my everyday work, as long as I’m not too far behind.

As a long time user of the Budget Maestro software application for small and medium size enterprise budgeting and forecasting (www.centage.com), I was quite content with the reporting capabilities of the software and the fact that I was able to quickly, as soon as the actual accounting data was available after period end close, analyze budget data against the actual results.

This analysis can be done within minutes of importing trial balance data into Budget Maestro.  If the General Ledger used is one that is directly supported by Link Maestro, another Centage Corporation software product, data is immediately available in the Budget Maestro software to analyze.  This arrangement seemed to do the job.

Then, years later, I heard about a new Budget Maestro companion product, Analytics Maestro, which seamlessly connects to any Budget Maestro plan (or any of its versions and actual data).  For reasons that I just can’t explain, I did not jump on the opportunity to investigate this product until recently, when I acquired a license to this product.  This followed a webinar I attended on this product, and half way into the demonstration I knew I had to have it.

In my blog entry titled “Two Key Principles in the Budgeting Process” I mention two fundamental principles that each budget process should encompass. One of them is timely and periodically analyzing actual data against budget data. This activity cannot be stressed strongly enough. No intelligent and informed decisions can be made without reliable data that can be easily seen and understood. My only regret here is that I did not acquire Analytics Maestro sooner.

Assuming you have the ability to perform this analysis on a regular basis and without too much effort and that the budget data can be relied on, can you really see and understand the results of the analysis if you just compare numbers?  What if you had a complex organization with many business units and multiple product lines, customer classes, sales regions, expense categories and other business “dimensions”? That can make the analysis much more complicated because you have to be able to slice through the data’s “dimensions” and look at the data from multiple viewpoints.

This is exactly what Analytics Maestro is able to successfully address. It lets you see and understand your data like never before. This is what got me so excited about this product and it is why I now regularly use it and share my experience with it with people I know who daily face these challenges.

Analytics Maestro is an MS-Excel add-in product. It connects to user created Budget Maestro data cubes, the storage units that hold all the Budget Maestro plan data, including all versions, as well as actual accounting data captured by Budget Maestro from the company’s accounting General Ledger.

Excel is used because of its great formatting capabilities and the presentation graphics it affords.  Just like in Budget Maestro, there are no formulas or programming needed, only formatting, assigning color and graphics to make your presentation stand out, and your data easily understood.

However, there is one more great capability here: The budget and actual data are used by Analytics Maestro exactly the way you set up your organization structure (e.g., business units, reporting entities), data groups (holding data dimensions unique to your organization, like customer classes, product lines, geographic locations, etc.), chart of accounts structure and other dimensions.

The chart of accounts you use in your actual accounting system is mirrored in Budget Maestro, which makes it an extension of the actual accounting into future periods.  As budget items are assigned to their appropriate G/L accounts in the software, Budget Maestro automatically generates all the standard financial statements and other reports.  All that data is transferred to the data cube Analytics Maestro is accessing to create its presentation reports.

What this means is that any format of any report you choose is available in Analytics Maestro, including consolidated financial statements (e.g., Income Statement, Balance Sheet and Statement of Cash Flows).

When in Analytics Maestro, all you have to do is select the component you want to look at and as soon as you double click on its title, only the relevant data appears, while all graphs and charts, tables and other presentation data instantly change to reflect your selection.  Each selection displays only the relevant data, allowing you to slice and dice through it like never before.

A quick demonstration of this product was all it took for me to be hooked.  I knew right there and then that I had to have this product.  My experience so far fully confirms that.

For many years I’ve been preaching that unless a company can see and understand its data, any decisions made by management can be risky and ultimately costly.  It really comes down to the difference between failure and success.

Analytics Maestro (combined with Budget Maestro) is a product that can make that difference.

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.

Replace Excel with a Dedicated Planning, Budgeting and Analysis Solution

But make sure that moving away from spreadsheets doesn’t land you back in the same spot.

I read a recent article on TechTarget.com titled “How to know when it’s time to dump Excel for BP&F software”, authored by Linda Rosencrance. It lists and explains seven distinct signs showing that it is a good idea to move away from spreadsheets to a more robust and dedicated planning, budgeting and analysis solution.

The seven compelling points mentioned in this article should be enough to convince any person who is responsible for developing and maintaining a corporate budget that other, much better tools exist for use in this important process. Finance management should also recognize the drawbacks inherent in a spreadsheet-based process and push for an immediate change.

In recent years I’ve seen many organizations of various sizes make the transition. I’m also seeing an interesting phenomenon developing:  While the change away from spreadsheets is fundamentally good and meant to result in positive benefits to many individuals and several finance functions in the company, there are solutions on the market today that, in my opinion, entirely missed the point of developing a non-spreadsheet, dedicated planning, budgeting and BI software application.

On the surface it seems that moving the application into a database environment is the right thing to do; however, beneath the surface there seems to be something very obvious:  Users are still required to design and place formulas, functions and links in various places in the application in order to build a model and get meaningful results. In a sense, this is quite similar to working in a spreadsheet-based environment with its many pitfalls and shortcomings, some of which are:

  1. Substantial programming of formulas and links, with or without the help of outside consulting. Inevitable introduction of programming and formula errors into the model.
  2. Complex and cumbersome maintenance of the model, especially if there are changes to the business (e.g., new product lines, locations, mergers and acquisitions).
  3. Systemic and comprehensive internal control environment (change management) must be maintained in order to mitigate risks inherent in use of formulas, functions and links in spreadsheets used for financial applications. This is unlikely to exist even in larger organizations.
  4. Costly implementation, considering substantial outside consulting and company employees’ time.

For the reasons mentioned above I always encourage users to fully evaluate the different options they have once the decision to move away from a spreadsheet method has been made. Just moving away from spreadsheets may be very compelling for the seven reasons given in the referenced article, but unless the alternative is carefully researched, companies may find themselves in the same situation they were trying to get away from in the first place.

Readers of this blog know that I’ve been writing about a specific solution I like: Budget Maestro from Centage Corporation (www.centage.com), and for a good reason (actually many good reasons).  One of the main reasons I like this application is that it is a true departure from use of spreadsheets.

It is evident to me that the designers of Budget Maestro made a conscious decision to not only rid this process from use of traditional spreadsheets (for the obvious benefits listed in the above TechTarget.com article), but also to never force users to apply a single formula, function or link in the entire product. To me this is a very significant departure from the traditional process, including many of the database-based solutions. The four solution shortcomings listed above simply do not exist with the use of Budget Maestro.

Knowing that Budget Maestro is a comprehensive product with several pre-programmed dedicated business modules, and not having to input a single formula, it makes it so much more appealing to anyone thinking of moving away from spreadsheets.

And this makes it very hard to come up with a reason why this product, and perhaps other solutions (I personally have not seen any yet) that are a true departure from spreadsheets should not be selected.

Become Your Company’s Chief Future Officer

Why CFOs must be able to predict their companies’ future and how they can do it

Proformative.com, a premier website for accounting and finance professionals recently announced their annual CFO Dimension conference to be held this year in New York City on the 19th and 20th of October, 2015. This year’s conference theme is “The CFO as Chief Future OfficerTM – Driving strategy, Leadership and Innovation”. This year, 300 senior level finance, accounting and treasury professionals are expected to attend.

As we’ve seen in several of the blog entries on this site, the CFO’s position and responsibilities have evolved in recent years and the perceived association of their role with just the accounting and finance functions is simply not true anymore.

In the blog entry titled “CFO’s Big Picture”, I discuss how the CFO role evolved from a “chief accountant” to a more strategic role, relying on high quality, timely and accurate data to be able to help navigate the company.

The CFO’s Revised Job Description” post suggests that CFOs must now oversee areas such as IT, Legal and Operations, in addition to Finance, Accounting, Reporting and Compliance.

And finally, “Why CFOs need to adopt Financial Analytics” discusses the important practice and discipline of engaging in routine analysis of operations and financial data, both actual and forecast-ed, where CFOs are expected to understand operational and financial results and the underlying reasons for any unexpected results or deviations from budgets or forecasts.

As many of us can clearly see and actually experience in our daily jobs, the CFO position, even in smaller companies, is not the same it was only a few years ago. This is partly due to the realignment of the company’s upper management’s duties and responsibilities, but can also be attributed to a range of technology products aimed at solving the problems and challenges that most organizations face on a daily basis, mostly in long term strategic planning as well as financial and operational planning.

We’ve also seen on this blog that for small and medium size businesses (SMB) I highly recommend a suite of software products published by Centage Corporation: Budget Maestro, Analytics Maestro and Link Maestro.  I have been a long-time user of these products and went through the various version changes and upgrades over the years, and always felt comfortable that this product line had two simple and well-focused purposes:

  1. To empower company management with the ability to see, understand and make informed and timely decisions that will affect future performance of their organizations.
  2. To enable the planning, budgeting and analysis activities by offering a software solution that through built-in business rules and a user formula-free process can automatically generate a complete and accurate budget.

To do that, the software is able to both present future expected results via a set of future period financial statements and other reports, while monitoring past performance, through direct access to actual accounting data, formatted and ready to display in any desired manner.

The ability to access actual data as soon as accounting periods are closed and immediately compare with “future” versions of this data (i.e., budget data) has a profound impact on how the CFO and other members of the management team can move to make decisions with a level of confidence never before possible.

CFOs and CEOs can finally run their organizations based on more facts and less intuition or guesswork. Major mistakes can be avoided or at the least minimized and risks mitigated.

I think that with tools such as Budget Maestro with Analytics you too can become the “Chief Future Officer” in your organization.

Why CFOs Need to Adopt Financial Analytics

And why they can’t continue to do their daily work without it

RK Paleru, Executive Director of the Systems, Analytics and & Insights Group at George Washington University recently authored the article “How can CFOs adopt Financial Analytics?”.  He touched on the reality facing the finance departments of so many organizations that are not adopting new technologies and therefore still relying on spreadsheets to deliver the results that support decision making.  While these departments know that these tools are flawed, they still continue to rely upon them.

In response to Paleru’s article, a great discussion ensued on Proformative’s website.  One member commented that accounting and finance departments are so wrapped up in the close process, financial statement consolidations, financial reporting generation and compliance activities, that there is hardly enough time to devote to analytics, especially with the inadequate tools many of these organizations possess.  I tried to reinforce the notion that upper management (the CEO, CFO and certain other management team members) must have timely, accurate and complete data in order to be able to make reasonably informed business decisions.  In addition, major changes have to be made in order for management teams to be able to see and understand their company data immediately, as actual data becomes available and in conjunction with existing and updated planning, budgeting and forecasting data.

My general observation is that many existing planning and analytics software solutions do not provide CFOs the data they need.  This is due to the fact that the majority of the software solutions today cannot produce accurate and complete future period financial statements, and especially the Balance Sheet and Statement of Cash Flows.

This is why I am excited by a new generation of Planning, Budgeting and Analytics software which I call:  “SmartBudget Driven Future Period Financial Statements and Analytics”.  I’m sure this definition will be refined as this software category matures but for right now the essence of it is:

Generating future period financial statements and other reports, driven by a smart budget, prepared using built-in drivers and system pre-defined business rules, automatically consolidated across the enterprise that provides the CFO (and the CEO) with the insight into the future financial health of their organization.

Using this type of software, all the traditional potential errors and omissions are completely eliminated or greatly reduced due to the fact that no spreadsheets are employed in this process and users are never asked to provide formulas, functions, links, macros or any other programming.

The software should also perform analytics in particular areas of interest such as sales and expenditures and respond to any other custom requirements the organization might have.

Another desirable feature is the ability to “drill back” into the source GL containing the actual accounting period results.  By pulling in any required detail data from the GL (as detailed as actual transactions, if the ERP software GL is set up to post into in detail), the analyst can examine specific variances and anomalies, not visible on the summary level.  The root cause of these variances or anomalies can be investigated and any found issues can be quickly remediated.  The CFO, equipped with this information will have the opportunity to make process changes, or make timely and informed decisions.

Analytics Maestro, used in conjunction with Budget Maestro can provide:

  • Sales analytics, using both actual and budgeted data
  • Expenditure analytics
  • Future period Balance Sheet for each budget period
  • Future period Income Statement for each budget period
  • Future period Statement of Cash Flows for each budget period
  • Many other specific reports, tailored to the company’s needs

The future period financial statements can be consolidated or filtered by any entity or level in the enterprise entity hierarchy.

With this data, CFOs can have a pretty good idea of what the financial health of the company is going to look like.  They can see the predicted cash balance, receivables, inventory, payables and other liabilities.  They can easily obtain forecasted future financial ratios determine whether the company will comply with loan covenants whether or not it will be able to utilize its credit lines, whether or not it will be able to retire debt and other obligations in future periods and more.

By using a software like Budget Maestro, CFOs can have a pretty good idea of what the financial health of the company is going to look like.  A CFO can perform his or her job with peak performance when relying on intelligent data in real time.  Not relying on analytics can be a costly mistake. Luckily, there is a new technology available that can change all that.