The Budgeting and Forecasting Experts Blog

10 Key Elements SMBs Need for Financial Planning Software

If you’ve decided you need to move off of spreadsheets, and have determined which type of solution and vendor fits your business and budget, the next step is to evaluate specific aspects of budgeting and planning software.   The best solution for budgeting and financial planning delivers these 10 Key Elements:

1.  It is easy to implement, use and own.  At the core, you need a solution that has the financial logic built directly into the screens your team will use.  Line managers can enter data they know from from everyday operations without having to develop or maintain complex formulas or macros.  

2.  It closes the data gap.   You need a  solution that ties every user’s data into the same centralized relational database.  This allows everyone to see the same financial data, or whatever portion of the data they need to see. 

3.  Reporting takes center stage.  You must get a financial planning solution that provides easy and comprehensive reporting options.  The best options provide reporting without costly and time consuming programming.  You want your users to produce insightful reports at any level of detail with just a few clicks of a mouse.

4.  It makes collaboration easy.  Look for a solution that is designed with the non-financial user in mind.  Data entry screens that are intuitive to use, easy to enter data and to run reports without relying on IT.  

5.  It shows you the low-hanging fruit.  You'll need to generate multiple views of your business to enable you and your managers to see where the greatest business opportunities exist.  You get clear answers to questions such as: who are my most profitable customers?  Who are my most efficient managers?

6.  It enables you to go from reactive to proactive.  It will give you the right numbers when you need them, enabling you to move more quickly both when opportunities appear or when disasters loom.  It also gives you flexibility: your forecasts are no longer cast in stone.  As the conditions surrounding your business change, you can update your forecast to reflect today’s reality. 

7.  Your P&L, balance sheet and cash flow information is available anytime.  Your P&L is a short-term look at what happened last month or last quarter.  Your balance sheet is an indicator of the underlying strength of your business.  Cash flow tracks ability to cover expenses and fund growth. The right financial planning software will automatically tie these statements together to ensure 100% accuracy and synchronization.   

8.  It does not require IT resources. The right solution should be implemented easily by your finance team, with virtually no IT support.  Your finance team – and others – should be able to import data from other sources, create financial models and make changes as needed, generate financial statements and run management reports without using precious IT resources.

9.  It does not require changes to your existing account structure.  The software should work with your existing Chart of Accounts with no need for you to modify them.  It should not require you to truncate account names, condense accounts into fewer levels or make you perform other tricks to make your business fit into the tool.

10.  It grows with you.  You need a solution that keeps pace with your company in both size and cost.  Spreadsheets are hard to scale to large numbers of users, and you risk mistakes proliferating with more and more people working in those spreadsheets.  Larger solutions, like BPM, won’t shrink when you need to scale back.

Effective and efficient financial management is a critical function in any business, regardless of size.  No single tool is perfect for every company.  And no business wants to change financial management systems frequently.  It is vital that the SMB fully understand the capabilities and drawbacks of the financial planning systems they are considering. 

Choices in Budget Software: Megavendor versus Independent

Spreadsheets are not the only commonly used tool for budgeting in the smaller business.  While a large number of smaller-than-enterprise sized businesses use spreadsheets, a large number also use a combination of tools, ranging from ERP-add ons, to jerry-rigged accounting packages and tweaked general ledger systems.  These “solutions” work at a base level, but in reality they are simply using the wrong tool for the wrong job.  Accounting packages are just that: designed for accounting, not budgeting.  It’s the same with general ledger systems.

Once you weed out the wrong tools, you are really left with two solutions: business performance management (BPM)/ corporate performance management (CPM) systems and pure-play budgeting packages.  BPM packages are most commonly used by large enterprises.  BPM offers a comprehensive package for budgeting, planning, financial consolidations, forecasting and more.  It automates and delivers many of the capabilities that are just impossible with spreadsheets. 

But BPM isn’t necessarily an ideal solution for the SMB.  BPM is very expensive, often costing more than $100,000, significant in-house IT support and it may take years to implement.

Some vendors will offer solutions that are really “BPM-lite” solutions.  These are essentially enterprise applications with some features scaled back and a lower price tag.  At its core, these solutions are just repackaging by traditional enterprise vendors hoping to cash-in on the SMB market.  These offerings promise power, but also deliver a high level of complexity.  A level of complexity that is often far too much for the business with less than 500 employees.  These solutions have hidden costs, mostly in the form of significant in-house IT or external consultant resources. 

The other alternative for the SMB is a pure-play budgeting package.  This approach is particularly well-suited for the SMB.  In particular, a pure-play budgeting package:

• Conforms to your business, rather than making you change your business to fit the tool
• Synchronizes financial and operational views so you get a complete picture, easily, and when you want it
• Speaks native “accounting” – i.e., P&Ls, balance sheets, debits, credits, etc.
• Allows for easy what-if analysis
• Easily identifies operational metrics that impact financial outcomes
• Allows users to easily state the parent-child relationships between metrics and outcomes
• Is easily implemented by the finance staff, requiring little to no IT resources, either at implementation or afterwards.

The ideal financial planning solution for the SMB takes a cue from the big-company approach: it creates a consolidated financial model of the business.  It achieves this without creating chaos or turning your business upside down.  It is a centered approach that avoids the extreme of small business using the wrong tool for the wrong job, and big business throwing unlimited amounts of money, time and IT staff at the problem.

There are solutions available, both on-premise and hosted, that produce big company impact for smaller companies.  They are more reliable than spreadsheets, more versatile than typical budget “point” solutions or accounting packages, and much more affordable than BPM systems.

How much risk is involved with independent software vendors?

Everyone knows the adage that “no one ever got fired for buying [insert big vendor name].”  But that really only holds true for the enterprise sale.  For the smaller business, buying the bigger, more well-known, but more complex offering can be as risky and dangerous as buying from an unproven, too light-weight solution. 

Gartner recently surveyed customers using BPM and budgeting packages from vendors and developed some conclusions all CFOs should consider when purchasing software for budgeting:

• “Customer satisfaction is better for the independents [vendors, versus megavendors].
• “Pure-play vendors provide a better overall customer experience than megavendors.
• “Some independent vendors are best-suited to smaller, less-complex implementations.
• “Don’t automatically assume that buying a CPM solution from a megavendor is the best or only choice.  Pick the vendor that best suits your needs for functionality, business benefits and TCO.”
• “Consider the vendor’s sweet spot for size and cost of engagement, and match this to your own budget and scope of work.”

No single tool is perfect for every company.  And no business wants to change financial management systems frequently.  It is vital that the SMB fully understand the capabilities and drawbacks of the financial planning systems they are considering. 

Next week, I'll outline 10 Key Requirements for an SMB Budgeting Application.

5 Signs Your Current Budgeting & Planning Solution Isn’t Working

There are some clear and common signals that indicate your current financial budgeting & planning methods, processes and technologies are obsolete.  It’s time to consider a change if:

 

You spend too much time (and money) on mechanics.  Do you find yourself – or key team members – spending more and more time making your financial planning tool (or spreadsheet) work?  Does the amount of time needed to make the system work exceed the time you spend looking at the numbers?  If you find the amount of time you spend on financial activities is actually spent on software programming, writing mathematical formulations, defining relationships between various expense or revenue items, or laying out report presentations, it’s time for a change.

You don’t know what you can or can’t do.  Your financial solution should give you instant access to vital information; say, for example, if you can afford to buy something or not, and what the payoff would be if you do.  You should be able to get easy answers to questions like: If I spend money here, will that leave me with enough money to do what I want to do over there?  If there’s a lot of work in getting to those answers, or if you don’t trust the answer the budget seems to get you, you need to make a change. 

You can’t identify the low hanging fruit.  Some decisions are easy and some decisions are hard.  A budget should make it easy to answer questions like: Which employees, products or customers contribute most to my company’s profits?  How has this changed from last quarter?  If we end a line of business, how does that affect our overall profitability?  If I add salespeople in a particular territory, will the profit margins go up or down?  If your current system doesn’t make it easy to answer the easy questions, it’s time to make a change.

Your business is forced to accommodate your financial planning solution.   Maybe your business is growing, but you’re not certain if it’s a growth trajectory or a small blip.  You’d like to add some part-time, contract or seasonal employees.  But your system is too inflexible to let you foresee and plan those changes to payroll.  When your planning solution limits your business options, you need to make a change.

You can’t synchronize business views.  How often do you attend a meeting where each line of business manager has his or her own budget?  Or various managers each have a different view of the business, and management has no real insight into which view – or views – are most accurate?  Operations present one view of the business and finance – the “bean counters” – present another.  When you can’t get a complete and consistent view of the business, it’s time for a change. 

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First Steps Toward Enterprise Budgeting

For some companies, moving beyond spreadsheet based budgeting is a welcome alternative for others, an intimidating proposition.  No matter what camp you fall into, a best-practice approach to moving beyond spreadsheet-based budgeting would start with these steps:

Fully understand your current budgeting model.  Is there a documented process?  Talk to all of those who are involved.  You’ll be sure to uncover embedded assumptions, formulas, reporting requirements and experience that are important to transfer over to a packaged application.

 

• Determine what works and what does not work in your current process.  For example, if you particular business model requires the bottom-up forecasting of many participants, you need a packaged application with strong collaborative features.

 

• Create the vision.  Project the ideal vision of your budgeting process, including who would participate what integration would be helpful, which general ledger or other transaction systems, such as your HR, FAS, CRM or ERP system, your budget should link to and the reporting needed.

 

• Conduct user analysis.  What kinds of users today take part in your budgeting process, who is missing, and who are the people you want to draw in?  Who are the stakeholders in the budgeting process?  By documenting their needs, you can set the stage for a good level of user acceptance of the budgeting application.

 

• Secure high-level executive sponsorship and ensure that you will have sufficient project justification and funding.  Present your business case for the change in terms of the tangible benefits (reduction in man-hours) and the intangible benefits (faster, better, more accurate reporting). 

Take these first steps and you'll be on your way to a more efficient budgeting process.

Accurate Personnel Planning Vital to Non-Profits Expense Management

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

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

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

"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.

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