The Budgeting and Forecasting Experts Blog

Internal Controls and Your Budget

Why having internal control over the budget process does not automatically mean it is done correctly.

I just finished my portion of work in a recurring, annual audit and certification of internal control over financial reporting in a large, publicly held manufacturing company.  This is an engagement designed to assist management in their assessment of design and effectiveness of various internal controls over financial reporting, mandated by the Sarbanes-Oxley Act of 2002 for most publicly traded companies.

Among the many functions in accounting, finance and operations, this company had a small set of controls surrounding the area of budgeting and forecasting.  Although these controls do not directly affect financial statements, evidence of their performance is an indication of effective finance policies, attention to detail and management’s commitment to execute its entity level controls.  The annual budget internal controls usually are concerned with the existence of an annual plan, its review and approval by management and the review and approval of changes to the budget throughout the process.

One of the activities I am always involved in when testing controls over the annual budget includes reviewing the budget itself.  As is common with very large organizations, this company’s  budget consisted of a compilation of many worksheets prepared and submitted by regional divisions and operating units, and entry into the corporate finance management software.

To my surprise, the first time I worked on this engagement, there was no budget of the corporation’s balance sheet.  There was only an income statement, by region, by operating division and by business unit and product line.  When I asked one of the finance managers why they were not budgeting the balance sheet his response was: “we never do that”.  Since I knew the real reason from experiencing the same phenomenon in other organizations I accepted his response.

Anyone who works in the administration of large enterprise financial management software knows how difficult and costly it is to properly implement and maintain the software across a large organization.  Creating a model that will project a complete and accurate balance sheet is not a trivial task.

In fact, unless the planning software incorporates (by design) transaction based forecasting technology, the forecasting of a balance sheet with all of its accounts across the budget period is going to be a rough approximation of these account balances.  I have already explained this concept in earlier blog posts such as: “Those Debits and Credits”.

This manufacturing company passed its internal audit of the budget process controls.  There was evidence of the existence of an annual budget, evidence of review and approval of this budget, and evidence of review and approval of changes to the budget and its periodic re-forecasts.

While there were no compliance issues, I kept asking myself whether this organization could really obtain complete benefits from their existing budget process, without budgeting the balance sheet.  My conclusion was that without the proper tools and employing a lot of hard work and constant review and troubleshooting, this company, like many other similar organizations, will simply continue to ignore this important component of the budget and will dismiss it as “unimportant” or something that traditionally has never been done.

I couldn’t help but remind myself how Budget Maestro, delivers the benefits finance and corporate managements truly need.  This software automatically, completely and accurately forecasts the balance sheet (and its derived statement of cash flows) without any user-supplied formulas, macros or links.

In contrast to the manufacturing company example above, companies that use an application like Budget Maestro, whether or not they employ a formal set of internal controls over the process, benefit from an accurate set of forecasted financial statements and other business intelligence, gaining better insight into the future financial health of their organizations.

While Budget Maestro may not directly fit into very large and complex organizations like the one described here, it is well suited for small and medium size or even mid-market companies that understand that the budget process and its companion analysis process  should be used for their intended purpose.

I only hope that as time goes by, many more organizations will come to the realization that just having good control over the budget process is not enough in getting the true benefits from it.

Tags: budget maestro, budgeting, budgeting and planning, business budgeting software, cash flow reporting

Cash comes first

How forecasting cash should not be a difficult chore with the right technology

I recently came across an article in Accounting Today titled:  “Art of Accounting: Start with the Cash”, authored by Edward Mendlowitz, CPA, a partner at WithumSmith+Brown, PC, CPAs.

In this article the author tells a story of an audit he once performed with an assistant where the author decided to perform the cash accounts audit by himself, a task usually delegated to junior accountants and regarded more of a “chore” than “serious” audit work.

As the author of this article points out, cash is one of the most important accounts on a company’s balance sheet and is at the top of the chart of accounts and the first line on the balance sheet, being the most liquid asset.  By auditing cash first and with its many in and out transactions, one can learn a great deal about the business under audit.

I can personally relate to this story as I have seen on more than one occasion how cash accounts were given to entry level or junior accountants, especially in larger accounting firms.  The reason was usually:  “They need to start somewhere”, and “doing a lot of grunt work in auditing cash accounts is a good place to start”, something senior auditors may regard as “unimportant” or perhaps a “chore better left to junior accountants”.

There is sometimes a similar mentality when it comes to cash planning and budgeting or forecasting the company’s cash flow.  The focus is often on the P&L (Income Statement) and achieving a desirable net income.  Cash and other balance sheet accounts are often not part of the budget preparation process.

To make things worse, those who decide to plan and budget their cash quickly realize that cash is very difficult to forecast.  Unlike its actual counterpart, though tedious to review or audit because of the numerous transactions flowing through this account, forecasting cash account balances with any degree of accuracy and completeness is not feasible using common planning methods and tools (e.g., spreadsheets or other purpose designed software tools that behave like spreadsheets).

In order to be able to successfully forecast cash we need to use a completely different approach.  We need to have the beginning cash balance (taken from the closing cash account balance in the accounting or ERP system) and consider all cash transactions resulting from all forecasted activities in our plan or budget.  What this means is that every item we forecast (sales, inventory costs, operating expenses, personnel expenses, buying and selling of fixed assets, borrowing activities and repayments, etc.) must be considered in order to arrive at a forecasted balance for each of the budget periods in our plan.

This cannot realistically be accomplished using a spreadsheet or even specific budgeting and forecasting software applications that use a “spreadsheet” like approach (with formulas, functions, data links, etc.).

Thankfully, there is a radically different way to do this, which is why I always recommend taking a serious and close look at Budget Maestro.  This is because the application uses the above-mentioned approach of transaction based forecasting.  To me, this software is a clear innovator and quite possibly a game changer.

Using this software, cash, always the company’s lifeline, can be forecasted with a greater degree of confidence, way in advance of cash crunches or other crises, allowing corrective measures and important decisions to be made when there is still time to rationally make them.

As the author of the above referenced article says, cash audit work should be left to senior personnel because of its great importance.  Using our Budget Maestro software example, forecasting of cash (and all other balance sheet accounts) should only be done by purpose build software, specifically designed to do that.

An added bonus, among many other things, is the fact that forecasting cash does not involve any grunt work.   With Budget Maestro, these tasks are performed quickly, automatically, completely and accurately.

Tags: budget maestro, budget software, budgeting, budgeting and forecasting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting

Accounting and Business Data Come to Life

How a simple setup can empower your business decision-making process

I recall consulting to a small manufacturing company (about 350 employees) a few years ago where I was tasked with setting up a reporting system and some fundamental internal control and internal audit functions.  The first thing that struck me was the incredible amount of data flowing out of the accounting system.  Just about any data residing in the accounting software database was accessible, either through standard reports or custom database queries.   Typically I see this in larger organizations with more sophisticated IT systems, but here was an opportunity to do something meaningful with all that data.

My immediate reaction was, is anybody really able to make sense out of all this data?  Can they look at it and understand it in a meaningful way?  And finally, how often do they look at the data and are they able to make any informed decisions after analyzing what their system provides?

It became apparent that poring over columns of numbers and seemingly an endless number of sheets of paper was a chore no one at the company enjoyed doing, and usually resulted in the reports either being filed away or shredded.  No informed decisions could be made in the way the data was presented.  There was absolutely no value in continuing this pointless exercise.

The first thing we did was set up a financial dashboard with a graphic display of all key data.  The incoming data was selectively used to visually display (using MS-Excel’s comprehensive charting and graphic tools) charts of key financial ratios and key performance indicators.

Unfortunately, the raw data had to be manually keyed into certain Excel tables that drove the visual dashboard.  There was no automated link to accounting data or budget data and all reporting was two dimensional and could not take advantage of the multi-dimensional nature of certain business data, such as sales regions, product lines, customer classes, etc.  However, this was a giant step forward, in a journey of discovering additional automation opportunities.

We set up charts with monthly data points for all key sales data, gross margins, short and long term solvency ratios, turnover ratios, financial leverage ratios and several of their specific industry KPIs.  Key financial statements were also formatted using pre-designed templates.  Now everything was visually available to view and analyze.  An endless amount of meaningless raw data has finally come to life and encouraged management to seriously look at it from a perspective never available to them before.

For the first time they were able to see specific trends, strengthening and deterioration of certain financial ratios and KPIs.  The decision making process was finally starting to make sense.

The point here is that we all respond so much better to visual representation of data; data that our computer systems and software have little or no difficulty processing, but which we have such a hard time interpreting unless it is visually appealing and well organized.  With the right tools, this data can easily be translated into a colorful and engaging format, encouraging us to closely pay attention to it and respond quickly to what it is trying to tell us.

Fast-forward a couple of years.  I recently discovered a software solution that deals with all the shortcomings listed above and is fully integrated with a company’s business data.  Analytics Maestro mentioned in my blog entry titled “Better Analytics for everyone ” .

Within a few days of using Analytics Maestro I realized that I finally found a tool that not only can address the issues described in the example above, but can perform automatically and nearly effortlessly (no data entry needed) and with no errors, while utilizing the multidimensionality of the database.

In its most fundamental function, Analytics Maestro seamlessly connects to data cubes (multi dimensional data arrays), which store data from my automated budgeting and forecasting solution, Budget Maestro, also made by Centage Corporation.  Budget Maestro collects data from accounting software packages or ERP solutions, as well as all of it’s own budgeting and forecasting data (see my other blog entries on this enterprise budgeting and forecasting solution).

When you set up display templates using Analytics Maestro, inside MS-Excel, data residing in data cubes create your specific charts, graphs and reports every time you connect to the data cube and with up-to-the-minute accuracy and detail.

It is remarkable to note that all of Excel’s graphic and charting capabilities are available to Analytics Maestro users.  Presentation quality financial reports are also available and will have the same appearance (i.e., format) each time you run them.  And like in Budget Maestro, no formulas and links are ever used or required in Analytics Maestro.  There is 100% automation and zero errors.  The source data will always be faithfully represented in Analytics Maestro.

As soon as closed accounting periods’ data is available, it automatically appears as a visual representation of the data in Analytics Maestro, once a connection to the data cube is made.  Any reports set up in the software will also automatically update.  Various dimensions can be used to display specific data.  With a click of a mouse, specific dimensions are selected and only data that pertains to these dimensions shows in the charts and reports.  Slicing and dicing data has never been this easy.

Of all the reports and charts I’ve already put together, I personally like to display graphs of critical financial ratios, both the forecasted versions and the actual ones.  With Analytics Maestro connected to Budget Maestro, this becomes a simple reality.  I can see in charts how actual current ratios change from period to period against their budgeted version (which is automatically derived from the Budget Maestro model).  Other ratios based on Balance Sheet or Income Statement data are very easy to display. What about the accuracy of forecasted Balance Sheet accounts required to produce accurate financial ratios?

You may realize by now that Budget Maestro is the only product of its kind to automatically calculate an accurate Balance Sheet (and a Statement of Cash Flows), using your budget line data input and Budget Maestro’s selected, built-in, business rules and drivers.  When you have a reliable and accurate forecasted Balance Sheet, you can display these key Financial Ratios with confidence using Analytics Maestro.  Of course, data coming from the actual and budgeted Income Statement (and all of its versions), and other reporting data defined in Budget Maestro can also be part of the Analytics Maestro display.

There is no limit to what you can do with this software.  The hard part is to restrain yourself to creating only the number of key reports, charts and visual displays that really need to be analyzed and monitored.  It is so easy to get carried away and create a multitude of colorful charts and reports that you may not be able to comfortably analyze and monitor periodically.  Usually, less is more, and you’ll soon know exactly what to focus on, especially when it’s so simple to create (and delete) elements in your display output.

The way I see it, with Analytics Maestro you’ll never look at your accounting and business data the same way again.  There is simply no substitute for accurate, reliable and timely delivery of key data in a way you can immediately see and understand.

Tags: budget maestro, budgeting, budgeting and planning

A new way to look at IT budgeting

Let’s look at both costs and benefits

Of the many articles that are published on, one particularly got me to think about a popular topic I’ve had to deal with quite a bit in last 10-15 years, namely, Information Technology Budgeting.  This article, titled “Keep an eye to value in the IT budgeting process”, and is authored by Rob Livingstone, Owner and Principal, Rob Livingstone Advisory.

The main point the author is trying to make is that while IT costs can be relatively easily forecasted and formally budgeted, the value that these costs will (and should) bring to the organization are not as simple to forecast.  However, value and benefit of these IT capital expenditures should be tied to the underlying expenses.  The author then goes on to recommend several key activities that will help the organization in tying these two pieces together.

This reminds me of how we can use KPIs (Key Performance Indicators) and drivers in our planning and budgeting process.  IT capital expenditure budgeting is a great example where KPIs and drivers should be used.

In my blog post “Do you Budget for Technology Spending?” , I touch on the topic of using drivers in the planning solution for IT budgeting.  KPIs are used to define these drivers and the appropriate expense results are dependent on these drivers.  For example: IT spending $s per FTE (Full Time Equivalent).

In that blog post I also made reference to Budget Maestro, where drivers (based on KPIs) can be easily placed without any programing, formulas, macros or links.  The output is directly driven by these values and always follows the pre-determined business rules established for them.

To take it one step further and in conjunction with the topic of the above referenced article, KPIs can be developed to establish drivers that will affect revenue streams in the revenue module of the planning application.  In Budget Maestro this is as simple as defining the driver and tying the revenue line to it.  As mentioned before, this step does not involve any programing or formula work, which is one of the features that stands out in Budget Maestro and makes it much more practical to implement and maintain by many organizations.

To use a simple example, a revenue line can be defined and tied to a driver based on IT capital expenditures.  This driver can be the number of outbound sales calls made based on equipment capacity budgeted for in IT capital expenditure.  That in turn, and using an established KPI called revenue per outbound call, will drive the forecasted revenue on that line, which becomes part of the organization’s budget and will roll up according to the enterprise structure in the system.

This is one of many examples that demonstrate how seemingly complex planning challenges (e.g., forecasting value derived from IT capital expenditure) can be overcome with use of KPIs and drivers.

Employing an advanced planning and budgeting software solution, such as Budget Maestro makes it logical and straightforward to employ these KPIs and drivers.  An obscure concept of forecasting and measuring value derived from use of technology becomes manageable and with useful and hopefully tangible results.

Tags: budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning

How Much of Your Credit Line Can You Tap?

Forecast your ability to borrow on your line of credit with accuracy and confidence

In a recent blog entry I tried to convey how important it is to be able to accurately and completely forecast a company’s balance sheet and the many benefits associated with it.  For many Budget Maestro customers  who also use Analytics Maestro, this is an everyday reality.

We looked at one important benefit, the forecasting of meeting or breaching loan covenants and how properly planning and continuously analyzing (with Analytics Maestro) can show us in advance how the company is going to perform and what changes need to be made (hopefully well in advance) in order to eliminate or at least reduce negative results that can have severe consequences to the company.

Here is another great benefit of balance sheet forecasting:

Most small and medium size companies have a line of credit (LOC) established with their local bank or a financial institution.  In addition to LOC covenants that are in the LOC agreement, all banks have some restrictions imposed on the use of the credit line.

For example:  The bank establishes a LOC limit (e.g., 13.5 MM).  Then, if the LOC is secured by the company’s accounts receivable and inventory, the lender will almost always have restrictions on these two assets, which means that less than the full asset value can be used to secure the outstanding LOC balance.  In our example let’s assume that only 80% of all eligible accounts receivable can be used to calculate the maximum amount that can be borrowed and remain outstanding on the LOC.  We will further assume that only 50% of the inventory valuation (at each period end) can be used in the calculation.

In addition, the lender may stipulate in the LOC agreement that the maximum inventory value that can secure the LOC is $7.5 MM, regardless of the actual valuation.

Normally, without proper forecasting and analysis tools company managements are faced with the challenge of manually forecasting how much of the credit line amounts may be available to them during the plan or budget period (e.g., 12 month, 24 months, etc.).  In reality, many smaller companies are unable to do that or prefer to ignore it due to lack of proper technology tools.

This is in addition to the difficult task of forecasting cash flow and the cash account balance at each budget period end, unless the company’s balance sheet is accurately and completely forecasted.  In previous posts we saw that balance sheet forecasting is not only possible with Budget Maestro, it is a reality and is routinely used by the companies who use this application.

How would our LOC example work using Budget Maestro with Analytic Maestro?
First, we must complete our company financial plan and budget.  This is done in Budget Maestro and does not require programming or entering any formulas, links or macros.  We rely on using built in business rules and logic and can depend on drivers we enable, as well as other entered forecasted data and business specific assumptions.

The budget entered will automatically generate forecasted financial statements that cover every period included in the budget.  The obtained forecasted balance sheet will show us the forecasted cash, A/R and inventory balances (and all other balance sheet account balances).

Using Analytics Maestro, any data available in Budget Maestro can be displayed in any format we desire.  Since Analytics Maestro uses MS-Excel’s formatting and display capabilities we can customize reporting templates that will automatically pull data from Budget Maestro and display them exactly the way we want them to look.

A custom display showing the available LOC balance is set up using the Budget Maestro forecasted AR and Inventory account balances, in conjunction with the bank’s restrictions on these two accounts.

Using our above example (13.5MM LOC limit, 80% of AR eligible, 50% of Inventory eligible to a maximum of $7.5 MM) and with the following five ending balances:

                           Jan 2015    Feb 2015    Mar 2015    Apr 2015    May 2015
AR Bal(MM)    6.4              7.3                7.1                7.5              8.1
Inv Bal (MM)  13.6           14.4              15.1              15.7             16.2

we can see that in these forecasted periods the available LOC balances (how much we will be able to borrow on the LOC) are:

                      Jan 2015    Feb 2015    Mar 2015    Apr 2015    May 2015
LOC Avail.     11.9              13.0              13.2             13.5             13.5

A graphic representation of the forecasted available cash from our line of credit can be quickly set up and will display the above data as follows:

In this example we can clearly see from the display output that the company is limited in the first two months by the inventory credit limit component of the LOC and in the last two months of this example by the LOC total limit.  This data can be made visible for every period of the budget, for example 12 months, 24 months or longer.  It can easily be compared to current actual data as well as historical data.

As budget data and assumptions are changed, all financial statements are updated in real time.  The data used in our example will also be updated, showing the new results.  If you have more than one version of the budget set up in Budget Maestro, as well as actual and historical data, you can see all that as well.  With multiple LOC’s (in multiple entities) you can see each LOC data individually, globally or in any combination of entities.
With a forecasted balance sheet, using this example, not only can you project your cash balance and other balance sheet key account balances at each budget period-end, you can also clearly see the available cash from your line of credit, using the exact terms and restrictions imposed by the lender.

You can plan ahead to make this available LOC cash work better for the business and can also be better prepared to request changes (e.g., increases) to the LOC well in advance before you run into a cash crunch.  On the other hand, you can plan on reducing the LOC balance over time by better planning your inventory or production demand, better managing your vendors or supply chain, etc.

As is always the case with balance sheet forecasting, Budget Maestro with Analytics Maestro, takes the guess out of your forecasting through a clear and up to date presentation of key balance sheet numbers, financial ratios and other automatically calculated key performance indicators as well as provides a full set of forecasted financial statements just like your actual accounting system, except projected into future periods.

Tags: analysis, budget maestro, scenario planning, what-if analysis, what-if scenario

Are Data Scientists and Financial Analysts Becoming Obsolete?

Why data scientists are still needed in large organizations and how technology can offer great benefits to smaller companies.

I read an article by Nicole Laskowski, Senior News Writer, titled:  “Will the rise of self-service BI tools lead to the demise of the data scientists?”

The author questions whether readily available business intelligence tools used by non-technical company employees, without help from financial analysts and data scientists, may make the reliance on such corporate positions a thing of the past.

It’s true that with the help of some very advanced analytical tools, there is less need to perform intense data mining and other activities that extract valuable data out of corporate databases or data warehouses.  These tools are now available at lower than ever licensing and implementation costs and can be found even in small and medium sized organizations.

Of the many uses of such data analytics tools, business performance management comes to mind, along with analysis of financial statements, actual to budget variance analysis and of course various marketing oriented analyses that can tap vast amounts of information stored in multiple data warehouses around the globe.

As the above referenced article points out, data scientists or financial analysts are still going to be in demand, especially in large organizations where data analysis needs are complex and where the majority of data queries and reports are custom built for specific users or functions.  The tools and expertise required to extract and present the data far exceed the knowledge and experience of the average employee or manager and the conclusion of course is that these positions are here to stay and perhaps even expand.

What about small and medium sized businesses?  As it turns out, these are companies that never had a great number of financial and business analysts on staff and many still have few or even none.  With the availability of analytics software tools, some of which can interface with the company’s accounting or ERP software, many employees and managers in such companies can gain access to specific data and in a format meaningful to them.

A good example is the business intelligence gained from analysis of actual financial performance as evidenced by accounting data extracted from the accounting or ERP software for recently closed accounting periods or a series of historical periods (months, quarters, years).  This data is compared in the analytics software with similar data extracted from the planning and budgeting software, representing future accounting periods.

The result is a clear picture of how the company performed against its approved budget.  The analytics software can be set up to give its users key data in pre-defined formats, either graphical, tabular or both.  Users can slice and dice the data in any imaginable way in order to extract views of specific reporting entities, sales territories, product lines, customer classes, etc., for any desired time frame.

The information gained from this analysis, which can be performed as soon as an actual accounting period is closed, is intended to convey key data to management, who are tasked with making business decisions based on this data.  Since the analysis should never be delayed in a well-executed process, management can continually steer the organization in the right direction, while minimizing business errors and wrong decisions.

Since this process and its underlying software tools are now available to small and medium sized companies, the software and its users jointly become the “data scientists”.  As for large organizations and their much more complex needs, it looks like data scientists, business analysts and financial analysts will continue to enjoy job security.

Tags: analysis, budget maestro, forecasting, scenario planning, what-if scenario

Will you Breach Your Loan Covenants?

How technology can help in forecasting your debt covenants compliance

Having debt while running a business is common; in fact, most companies are never able to grow on their own unless they acquire some kind of debt, such as a bank line of credit, a long-term business loan, or factoring of accounts receivable.  In larger organizations, issuing corporate bonds is another way to secure financing in addition to equity financing.  Small and medium size organizations are almost always dependent on a line of credit and/or long-term loans, generally secured by their accounts receivable and inventory as well as other assets.

These business loans and lines of credit come with covenants, which are conditions that must be met on a periodic basis in order to continue to use these forms of financing.  Breaching these loan covenants can have serious consequences to the business.  If not cured, a covenant breach can cause a loan to be called based on the typical acceleration clause built into the loan agreement.

Loan covenants define what the borrowing company must do (e.g., maintain an insurance policy with minimum required limits) or not do (e.g., borrow additional funds from another lender) as well as maintain minimum financial results, such as certain levels of cash flow, or meet key financial ratios.

When planning and budgeting for the future (e.g., next 12 months, 24 months, etc.), companies forecast and budget their revenues and costs associated with these revenues and other expenses required to run the business.  Unfortunately, most organizations, especially smaller companies, do not or are unable to forecast their balance sheets for several reasons mentioned in some of the earlier articles in this series:  Forecasting a Balance Sheet in a Spreadsheet World  and Why Financial Ratios Should be part of Your Budget and Forecasts.

With the inability to clearly forecast the balance sheet, much of the insight into the future financial health of the organization is lost.  Other than the obvious lack of cash flow (and cash balance) forecast, other very important attributes of the company future financial health are not available.  These are typically key financial ratios (e.g., debt to equity ratio, current ratio) and other indicators critical in assisting management in making important decisions.

It just happens that banks and other financial institutions use certain key financial ratios when implementing and enforcing these loan covenants, which are stipulated in the loan agreement.  These banks expect the covenants (measured through financial ratios) to be met as agreed by their borrowers.  Typical financial ratios that are used in defining loan covenants might be debt to equity ratio, Debt Service Coverage Ratio and possibly others.

Reporting these ratios after an accounting period has been closed is not difficult.  When you do that, you immediately know whether or not your loan covenants have been met.  Wouldn’t it be good (actually crucial) to know that in advance, perhaps 12 or 24 months in advance (or longer)?

The good news is that if you are able to accurately and completely forecast your balance sheet, you’ll be able to know whether or not your loan covenants will be met, in every period included in your budget.

Since it is nearly impossible to predict the future, it is important to note that all financial forecasts are highly dependent on assumptions (e.g., revenue growth during the budget period, forecasted costs during the same period, forecasted operating expenses, etc.).  However, if your planning and budgeting follows a specific logic and a set of business rules, using fair assumptions, your forecast will be accurate.  Moreover, having the right software tools is critical in consistently getting the desired output.

I have already referenced Budget Maestro with Analytics Maestro many times.  One of its greatest strengths is its ability to automatically provide a complete and accurate forecasted balance sheet (and its derived statement of cash flows), using the planning and budgeting data and without any user programming or formula work.

What this implies, especially when it relates to loan covenants, is that using the Analytics Maestro module (essential component of this software solution), one can have a visual display (as well as in tabular format) of all key ratios used to determine whether or not loan covenants have been met (for actual current and historical data) or are likely or not to be met in future periods covered by the plan or budget.

In Analytics Maestro, a set of charts (as well as tables if needed) can be set up to automatically display forecasted financial ratios and actual ratios achieved, using automatically applied formatting.  For example, using conditional formatting, you can easily display actual and future loan covenant breaches in red.  Formatting and using your own custom templates is only limited to the formatting options found in MS-Excel, the display application employed by Analytics Maestro, which is used only for reporting purposes, with no reliance on formulas, functions or macros.

It becomes obvious that by using Analytics Maestro, you can have any imaginable display or presentation of your actual and forecasted data, as provided by Budget Maestro.  This can include presentation quality financial statements that can be filtered by a reporting entity or any other desired dimension.  Financial ratios used in conjunction with loan covenants are just an example of what can be done with the software.

To continue our example, glancing at the Loan Covenants section you set up in Analytics Maestro will show all historic values, how close you were to breaching these covenants in the past or how high you are above the threshold and most importantly, where you are headed with meeting these covenants in the future.

Knowing where your financial statements are headed is essential to the decision making process.  It’s like knowing where the curves in the road are so you can properly anticipate when to steer your vehicle.  Conversely, not having this data ahead of time is like driving blind and risking your vehicle going off the road at the slightest turn.

Tags: budget maestro, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, financial planning software

Better Financial Analytics for Everyone

Who can really benefit from this?

Lately I’ve been reading a lot of information on various websites and blogs and listening to client comments and questions about analytics, or more precisely, how to better use the vast amounts of data available in most business environments to create meaningful reports and drive the decision making process that will transform observations derived from this data into action items, ultimately responding to what that data was trying to tell in the first place.

The most common question I hear is: Can a good set of analytic tools be implemented in smaller organizations, especially those with limited resources and more basic IT infrastructures?

10 to 20 years ago the answer to this question would have been simply no.  Information technology was just too expensive and complex to deliver practical analytics tools to smaller organizations.

This has all changed, and very rapidly.  All businesses today, even the smallest have computerized accounting software with all of the basic functions, including manufacturing operations, supply chain management, customer relations management (CRM), financial reporting, etc. being completely automated.

There are vast amounts of data stored in the software’s various databases.  This data is selectively used to preform all required accounting and reporting functions.  Shouldn’t this data also be available to analyze from other perspectives, outside of the required reporting functions?

Incorporating a good and practical planning software solution that closely ties into the actual accounting software (through a general ledger interface), coupled with a simple to use (i.e., will be really used by people after implementation) can provide a good answer to the question posed above.

Those who read this blog have seen my posts on small and medium size company software solutions reference Budget Maestro and Analytics Maestro.  These are comprehensive planning, budgeting and business intelligence solutions that are closely integrated with the company’s general ledger to retrieve actual financial data and using the data from the planning/budgeting modules included with Budget Maestro, perform a real time analysis and display of the exact data in the exact visual and output format the user requires.

I’ve written before that visual representation of data can have a profoundly more dramatic effect on its users than plain data.  When you see your data in a visual format that you have previously established, you can understand it better, usually immediately.  When the same format is used over and over again to display the changing data over time, this function becomes even more powerful.

The organizations that use Budget Maestro with Analytics Maestro have been able to combine the many capabilities of the planning functions (among which are use of drivers and key performance indicators) with the visual display and reporting capabilities of Analytics Maestro.

Finally, even a smaller company can have financial planning and analysis tools that only Fortune 500 companies were able to afford not too long ago.

Now you can ask specific questions and get the answers almost immediately.  These might be:

  •  What was my Gross Sales revenue per square foot of retail space in the last 6 months, by month, by region, or by store?
  • What was our IT spending per employee per quarter for the last 12 quarters? If you want to see this data by department, this can be easily accommodated based on the organization structure set up in Budget Maestro and your actual accounting or ERP software.
  • Show me a display of key financial ratios such as Current Ratio, Inventory Turns, etc., as a graph with monthly data points, and compared with the same ratios as derived from the planning software (Budget Maestro).
  • How is my Balance Sheet going to look in the next 18 monthly periods, or 6 quarters?  Analytics Maestro can immediately provide that report, using your pre-defined format, using the planning software data.
  • How do my actual financial statements for the period just closed compare with my budget and forecast?  With Analytics Maestro you can see these forecasted statements (Income Statement, Balance Sheet and even a Statement of Cash Flows almost instantly) compared with the actual statements.

These are just a few of an unlimited number of questions that can be asked and routinely answered by Budget Maestro with Analytics Maestro.  This can provide valuable insight on the existing and future health of the organization.  The visual display will help users understand the data, convey it to management and enable informed decisions and corrective measures to be immediately implemented.

This visual display, its charts, formatting, colors, etc. can be easily modified by users. Custom templates can be created and used to populate the dynamic data flowing from Budget Maestro for all specified budget data, as well as actual and historic accounting data.

Small and medium sized companies finally have the tools that only very large organizations only a few years ago were able to utilize.  With the typically shorter decision making cycles in smaller companies, using these planning and analytics tools can provide a clear edge over the competition and the ability to steer the organization in the right direction with more confidence.

Tags: analysis, budget maestro, budget software, budgeting and forecasting software, budgeting and planning, business budgeting software

Accounting Technology Tools – Fact or Hype?

Do you really get value out of all your IT investments?

In another interesting article on the’s website, the author Doug Sleeter, President at The Sleeter Group, Inc.  brings up the challenge of identifying good technology products and separating them from products that are often marketed using unrealistic claims; products that rarely live up to the expectation.  Although the author is mainly referring to software products, it is clear that these principles apply to all technology products and service offerings.

Software is a major contributor here, causing disappointment for users of various products soon after implementing these solutions.  This is primarily true for consumer software products but is also widespread among business applications.

I am exposed almost daily to technology products, many of which are software products in the area of accounting and finance.  These products are intended to either interface directly to ERP applications or used stand-alone.  Of these I can mention sales commission automation software, supplier management and performance software, contract automation, fixed assets management and maintenance, etc.  These products, according to their developers and publishers are there to solve common business problems and deal with challenges organizations face on a daily basis.  It seems that everywhere you look there is a solution they want you to believe you cannot live without.

In finance, the most common such application is in the area of planning, budgeting with forecasting, enterprise performance management and business intelligence.  Many of these applications are bundled in one package, as these tasks are usually related.  Others are licensed by function or offered as “light”, “intermediate” or “advanced” or in any imaginable selling configuration to entice people from different business environments and sizes.

In the past 20 or more years I have personally tried a variety of software products, all intended to enhance business functions or solve a real world business problem.  Lately, this has been far more noticeable with mobile device applications, some of which are targeted to business users.  My experience with new technologies and the accompanying new software products is that in many situations it is hard to justify the commitment to acquiring and implementing many of the product offerings, even if it seems appropriate (and most often tempting) to invest in such products.  Proper research almost always proves that.

When evaluating new product offerings we need to carefully weigh the benefits (must be measurable) versus the cost (total cost, not just the software licensing fees).

Here are two examples:

Sales Commission software:  Unless there are more than several persons for whom sales commissions must be calculated and there is a complex commission plan in place, it is hard to justify licensing (either SaaS or on premises) such an application.  There is a one-time license fee (on premises) or monthly subscription fees (SaaS) plus annual license renewal fees (on premises).  To that you must almost always add implementation fees, consulting fees for special maintenance and modifications, training of company employees, and other costs.  When you reach a point where the benefits outweigh the total cost by a good margin, you are ready to commit to such an undertaking.

Payroll Processing Software:  Here there are clear benefits for nearly all size companies.  Experience over the last three decades shows that benefits gained by automating this function almost always outweigh the costs involved in doing it manually and guarantees compliance when correctly used.  Only in rare circumstances and usually in very large organizations is this service performed in-house.

As for the planning, budgeting and business performance management software mentioned earlier, I find that the benefits gained from implementing such software dramatically outweigh the costs involved when the following results are achieved:

A.    A well-implemented plan and analysis process, done year-round provides management the tool to gauge actual company performance against its initial or updated plan or budget.
B.    The planning software allows management to evaluate the forecasted future financial health of their organization, through accurately produced forecasted financial statements, customized reports and dashboards of financial ratios and KPIs, and other tools.
C.    Management uses the data obtained from the system to arrive at relevant decisions and act quickly in response to this data.
D.    Fewer decision errors are usually made when data is available immediately after an accounting period is closed.

Since this type of product is now available to small and medium size companies, many organizations can enjoy the benefits while implementing the software at a reasonable cost.

As with other software applications, there is also marketing hype and unrealistic expectations in the planning, budgeting and management performance product category.  My advice is always to evaluate as many products that are available for the specific market segment and company size and choose the one that can realistically deliver results as described in A-D above.

Remember that marketing hype is human nature, as we all want to present our product or service in the best possible light, sometimes omitting weaknesses or exaggerating features or benefits.  Separating the fact from the hype is what it takes to find the right product for the defined task.

Tags: budget maestro, budgeting software, business budgeting software

Were you unexpectedly promoted to the CFO position?

A great opportunity for positive change.

I recently ran across a blog entry on the web site, titled “The Accidental CFO” and authored by Samuel Dergel, Director – Executive Search at Stanton Chase International, accessed with a free membership to, which is an excellent online resource and professional network for senior finance, accounting and related professionals.

In this article, the author discusses the seldom but possible scenario when an accounting or finance executive is promoted to the CFO position “accidentally”, or unexpectedly for various reasons.  The author then continues and gives several tips to the newly promoted CFO, as well as a little advice on how to grow into the role and develop relationships with senior executives and the outside world.

In my career in accounting and finance I was once “accidentally” promoted to the CFO role in a hi-tech company when the newly hired CFO decided after less than 6 months that the company was “too small” for him and that he missed the larger corporate environment.

I remember the quick transition period and having to come up with answers and solutions where there was no one to ask.  I also remember that for the first time I realized that I was in a perfect position to make good, positive changes and get the executive team to work more closely together on common company goals.

One area that presents a great opportunity for a new CFO, “accidental” or not, is the area of planning, budgeting, and business intelligence.  In recent years, companies of all sizes have been able to make use of outstanding planning, forecasting, reporting and business performance management (BPM) / business intelligence (BI) tools.  You no longer have to be the CFO of a fortune 500 enterprise to be able to harness all the power that your corporate ERP system and all other peripheral information systems can provide.

A forward looking CFO will always look for ways to not only improve relationships with senior executives and key employees, as well as key persons on the outside world (bankers, investors, key customers, key vendors, etc.), but to also improve the way the company translates its goals and visions into actual performance and the ability to monitor this performance and make the necessary adjustments in order to better align the actual performance with the anticipated results.

Today’s CFO, more than ever before, can have the tools designed to do just that.  Using a list of “must have” general features I recommended in the blog entry “10 Must Have Features of a Budgeting & Business Intelligence Solution” , they can implement a planning and BPM/BI solution that will become the best trusted and used financial tool the organization can rely on.

The CFO will work with the organization’s operational departments to have these tools implemented and put to use.  They will also closely work with finance to ensure that all data is correctly captured in the system and is routinely analyzed.

Whether you are a veteran CFO, a newly appointed one or “accidentally” promoted to this role, you have a tremendous opportunity to add value to your organization, value that can be measured and that will be appreciated by everyone involved.  As an added bonus, and amidst the sometimes-elevated stress that is part of this job, you will find great satisfaction in realizing that harnessing the power of current information technology is a major contributor to your organization’s success.

Tags: budgeting and planning, forecasting