The Budgeting and Forecasting Experts Blog

Accurate Personnel Planning Vital to Non-Profits Expense Management

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For many non-profits, personnel expenditures including payroll, payroll taxes and fringe benefits can be greater than 50% of their total expenses.  Yet many non-profits have trouble accurately tracking these costs for all of their employees.  An incorrect calculation can lead to over budgeting of your payroll taxes, such as FICA, or an underestimation of how much your people are really costing you.  A variance in either direction can significantly affect your bottom line and possibly handicap your ability to fund other revenue-generating programs.

Microsoft Excel is the typical tool CFOs of non-profits use to budget payroll expenditures.  However, as the organization grows, spreadsheet calculations become more complex and the incident of errors can increase.  The management of multiple spreadsheets, alone, becomes an overwhelming task.

This was the situation with one of our customers, Brattleboro Retreat, a non-profit regional specialty mental health and addictions treatment center in Brattleboro, Vermont.  They recognized the need to get a more accurate account of their personnel expenditures and that required implementing a solution that supported revenue planning, operating expense budgeting and payroll planning all-in-one with the ability to easily generate financial statements and management reports.

"We needed a budgeting and forecasting solution that had strong payroll planning features since payroll is our biggest expense," explained Financial Analyst II, Anne Fecto.  "Budget Maestro allows us the flexibility to budget by 'position' as our staffing requirements vary throughout the year based on the demands of the programs we offer.  We currently have 450 employees including salaried and per diem."

Ms. Fecto continues to explain, "We build our budget by projecting the census multiplied by the rate for each of our programs. Based on the census and projected revenue, we drive our staffing requirements for each program.  Working with our department managers on their staffing requirements, vacancies, new hires and projected raises, we can plug these variables into Budget Maestro and the system will automatically generate our payroll expenditures that fall into the appropriate period. This way I can account for all our payroll and related expenses and know we haven't missed anything that may impact the departments' expenses".

These benefits, along with Budget Maestro's ability to expand as your organization grows, explain why the percentage of Budget Maestro customers from the non-profit sector continues to double in growth over the past few years.   Non-profits can greatly increase their ability to budget and forecast with confidence,e for both strategic and operational needs, with the help of tools like Budget Maestro. 

Read the entire Brattleboro Retreat case study.

Why Database Applications beat Spreadsheets for Budgeting & Forecasting

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Anyone who's ever tried to create a budget in spreadsheets knows the frustrations of creating and maintaining formulas, tracking down broken links, getting 'circular reference' errors as well as the dangers of making strategic decisions based on error-prone data.  Fortunately, spreadsheets are NOT the only option.  Purpose-built, budgeting 'database' applications, make it easier to collect, consolidate, report and analyze financial data resulting in not only a more efficient process, but more timely and accurate data  - ready-made for today's constantly changing business climate.

The contrasts between database applications and spreadsheets are significant:

• Database are multi-dimensional, like a business

Instead of forcing a complex business into a flat spreadsheet, databases can accommodate very large numbers of records tied together in relationships defined by the user.  Databases are relational documents lending themselves to the creation of the Balance Sheet and the Statement of Cash Flows, as well as multi-dimensional views and reports of forecasted and actual data.  Depending on the user's hardware, millions of records can be handled as easily as a few dozen.

• Databases simplify data entry and reporting

Unlike a spreadsheet where the user must find and enter data in the right cell in the right spreadsheet, database systems can be programmed to accept entries as responses to natural language prompts.  The system then automatically stores the data in the proper data table.  Likewise, databases generally provide a report writer where users can create custom reports based on the existing data tables, apply specific filters to the data (for instance:  show all sales, by product in the Northeast sales territory only).  Users can modify preset reports or add their own.  In many cases, the report format can be made to mimic the format existing in the user's accounting or ERP software.

• Database solutions connect the forecast to General Ledger

A useful forecasting system should be an extension of a company's accounting system.  It will have a similar General Ledger account structure, similar accounts and similar transactions, only that these transactions have not occurred yet since they are future transactions.  This is impossible with a spreadsheet-based forecast, but easily achieved with a well-designed database system.

• The database turns forecast projections into G/L journal entries for future periods

Translating forecast data into date-stamped future General Ledger journal entries is what makes accurate proforma financial statements possible.  It allows the system to create the balance sheet and cash flow statements for future periods, displaying only the user-requested periods.   It is the database that automatically performs this translation, without special programming.  The accuracy of these forecast statements is dependent only on the quality of data, not on the accuracy of complex formulas and links in a large spreadsheet.

• Comparative reports of budget versus actual are easily produced

Using a database solution, all historical (actual) data, resides "alongside" forecast data, in a very similar format.  This allows the user to easily produce consolidated or single entity comparative reports (for instance, the Income Statement year-to-date forecast vs. the same, using actual data).

Budgeting 'database' applications are not only available to Fortune 1000 companies but are now readily available to the small and mid-sized organizations as they make the important step forward beyond spreadsheets.

When the Spreadsheet Becomes a Disadvantage in Budgeting

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Good budgeting practices are designed to minimize errors and inconsistencies, and engage front line managers that have the unique perspective of their department or area of responsibility naturally combining top-down guidelines and standards and bottom-up individual knowledge.   Excel, the de facto tool for budgeting, is a powerful personal productivity tool, however, it lacks the collaborative capabilities necessary in developing accurate, cohesive budgets that you can present to executive management, the board or your lenders. 

From my 25+ years experience in budgeting, there comes a point when a company's reliance on spreadsheets for budgeting becomes an impediment to effective decision-making and analysis.   There are several clues to detect this transition point before it leads to severely ineffective decision-making, lost productivity and lost opportunities.  So how do you know when your company is at the tipping point? 

Here are 12 Warning Signs That Your Budget Process Has Outgrown the Spreadsheet:

1. No single version of the truth guides or emerges from the budgeting process.  It's too hard to do because here are too many variations in the roll-up structure.
2. Ownership & accountability by business users have disappeared.  "These aren't my numbers!" syndrome.
3. Executives don't know who their most profitable customers are, what managers are most productive, why certain metrics are "out of sync".
4. The financial statements are not fully integrated because the model was modified too many times to ensure no errors.
5. Detail becomes impractical and almost unattainable.  Spreadsheets have grown so large.
6. Budget calculations have become too complex for most budget preparers to follow.
7. It takes more time to maintain the spreadsheet than to perform the actual analysis and planning.
8. The budgeting model breaks frequently with changes to data structure or roll-ups.
9. Data integrity issues abound - mistyped data, broken formulas, missing links - logic errors - making the budget model unreliable.
10. Comparing actual results to plan or last year's actuals is a 'cut & paste' exercise that slows down month-end analysis and reporting.
11. It's difficult to accurately track payroll, taxes and fringe for all employees -resulting in over budgeting for payroll taxes  - impacting year-end cash flow.
12. Deferred revenue projections (for renewals, royalties, subscriptions, etc.) are too complex to model requiring the layering of multiple revenue schedules within multiple periods.

If a number of these 'warning' signs mirror what's happening with your budgeting process perhaps it's time to consider a change for the better?   There are numerous database budgeting applications that automate the budgeting and forecasting process, serve to reduce budget cycle time, eliminate calculation errors and generate integrated financial statements.  The result?  You can re-allocate you your time currently spent on data entry and formula maintenance to strategic financial analysis activities that have a greater impact on the company's financial position.

3 Reasons Why Cash Flow Planning Doesn't Come Easy

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"Profits don't matter if you can't pay the bills".  It really boils down to that.

This is a common lament we hear from many small to mid-sized businesses today as they struggle to navigate through these tough economic times.  It's not whether your earn a profit or not.  It's whether you have the cash to pay the bills.  That's what makes the difference if your business survives or not.

Understanding your cash flow position at any time is critical to knowing if you can fund a particular project, acquire new equipment or hire new employees.  Unfortunately, most CFOs don't have the information to answer those questions confidently.

Generating accurate, timely and dynamic cash flow reports is typically difficult for most CFOs and companies due to the cumbersome nature of most company's planning, forecasting and reporting processes as well as the limitation in most software tools and applications today. 

The Reasons:

1.  Spreadsheet as the primary planning tool 

No dynamic links to the P&L and Balance Sheet; Spreadsheets don't understand accrual accounting. The reality, Accounts Payables and Accounts Receivables are too dynamic to be modeled in spreadsheets. You're left using averages or "guesstimates" that don't truly reflect your business and likely will skew your cash flow analysis.

2.  Planning for cash flow at the 11th hour

Planning for balance sheet items, and resulting cash flow analysis, is left for the "last day" or eleventh hour.  Typically, cash flow synchronization with the income statement and balance sheet is quickly performed by one person just prior to the sign-off on the plan.

3.  Balance Sheet is built at the "50,000" feet level

Often the Balance Sheet is built at a very high level, due to time constraints and the pressure to get the budget "done" and consequently, the less precise is the Balance Sheet, the less precise is the Cash Flow.

More Information about Cash Flow Planning

If "cash is king" in your business and you're struggling to develop an accurate cash flow plan, you may want to check out this software package and see if it might be of benefit.  For some practical advice on business cash flow planning, read this White Paper.

Get White Paper today!