Centage Blog

Make a Covenant to Properly Plan your Company’s Financial Future

How not having the right tools can be disastrous

A while back I wrote on this blog about forecasting the likelihood of a company meeting its loan covenants with its lenders Will you Breach your Loan Covenants?.  I normally wouldn’t repeat this or be redundant unless I thought it was of great importance to the readers of this blog.

I recently visited a high mid-market company on the West Coast where I have done internal control work in the past. During my engagement I was made aware of the fact that the company had failed meeting one of its loan covenants with its primary lender for the second year in a row. The first year they came pretty close to meeting the value derived from a formula dictated by the bank, but the second year it appears that the value had further drifted apart from the minimum required number.

As it is usual in cases like this the company entered into negotiations with its primary and other lenders in an effort to remediate the situation. Without going into great detail, this was not a pleasant experience for those involved, although a solution was found and agreed on. Using actual accounting data this company knew they were going to blow the covenant, but they were not able to forecast it early enough in order to make changes in anticipation of the worsening of their financial health, of which this particular loan covenant was an obvious indicator.

What makes the situation worse is that this company, despite having a solid management in place, good and dedicated workforce, including the accounting and finance organization, great work ethics and an incredible array of information technology hardware and software solutions, has no ability to properly forecast their balance sheet, where key data elements can be extracted and used to calculate forecasted financial ratios and in this example use the exact formula needed to determine the specific loan covenant they failed to meet.

The software application used in that company to perform all planning, budgeting and other corporate performance management (CPM) functions, is considered a Tier 1 application in its category, along with a popular Tier 1 ERP solution; however, management was just not capable of answering two simple questions:  “Will we be able to meet our loan covenants, and at what safety margin?” and, “Will there be a deterioration or strengthening of our future financial health and at what rate?”.

Finance professionals know that a company’s financial health does not deteriorate overnight. It often takes years of bad performance by certain business units, bad management decisions about acquisitions, product development, marketing efforts, etc., to put the financial health of the company on a noticeable decline. The sad part is that you often can’t easily detect that from reading financial statements and management disclosures to these statements, even when they are prepared in compliance with GAAP rules or meet SEC reporting standards.

As the link above shows, there are technology products that were designed to address these major challenges that so many organizations face.  It is clear to me that just investing in expensive IT solutions without completely and clearly defining the needs of the organization (e.g., ability to forecast a complete and accurate balance sheet) can lead it down a path where due to lack of visibility can cause unnoticeable worsening of the financial health of the company until it becomes apparent that something is very wrong.  This, often, it is too late and frequently results in either the failure of the business, or an unplanned acquisition at a deep discount.

As the title of this blog post suggests, I urge you to seriously look at what matters in your finance organization and equip it with the right tools that can make a clear difference between meeting or blowing your loan covenants. If loan covenants are not applicable in your business, the strength of your balance sheet certainly is and should be regularly forecasted.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Ideal CFO Skills

What qualities are essential and what CFOs should really focus on

There was a recent discussion topic on Proformative.com titled “The Ideal CFO Skills” .  It evolved from a question by a Proformative member trying to get a better understanding of what CFOs should devote their time to and what basic skills they must possess in order to do so. The question was based on an article in CFO.com by David W. Owens about skill sets provided by a recent CFO survey. The main categories given were:  Strategist, Catalyst for Change, Steward and Administrator.

Proformative readers were asked to form their own opinion on how much time CFOs should devote to each category and why. There were many responses to this question and the general opinion was that the “Strategist” was a critical category where CFOs must be able to continually analyze the performance of their organization using planning as a tool of reference, while also being a catalyst of change, usually in conjunction with the first category’s activities.

In my many years in accounting, finance, and upper management I have seen the CFO role evolve from the top accounting and finance person in the company to the CEO’s partner.  It used to be that if you wanted to become a CFO of an organization, your career path had to often start as a staff accountant, moving through the ranks while gaining experience and taking on greater responsibilities with each career advancement.  You often had to be a CPA (in the US) in order to be considered for the CFO position.

This has all changed in the last 10 – 15 years. Many CFOs in a variety of industries are not accountants by trade.  Some have sales and marketing background, others advanced to the position from operations management or the legal department.

CFOs are often the second in command at the organization, directly report to the CEO and in close contact with the company’s Board of Directors, investors and shareholders, and industry financial analysts.  It is common nowadays to see the accounting, finance, IT, Legal and HR departments report to the CFO.

The four skill categories given in the Proformative board discussion are all very important, but some of the activities in each category must be delegated more than others in order for the CFO to meet his or her objectives.

Strategist is by far the most important skill category. The CFO must work very closely with the company’s CEO while interacting with other members of senior management in order to clearly understand the organization’s performance, analyze it against pre-determined goals and milestones and be able and willing to affect change. This is where the second skill category mentioned comes in: Catalyst for Change.

The CFO must continually search for ways for the organization to adapt to changes in the company’s market place, its customers, product or service lines offered vs. actual or forecasted demand, existing and competitors’ technologies or product offerings, legal and moral issues and changes in the general economy. These continuous changes must be performed timely but always thoughtfully and with solid data backing up each change.

In being a Catalyst for Change the CFO must earn the company’s respect and trust, as in doing so, changes will be embraced by all levels of management and can actually take place within the planned timeframe and budget.

Stewardship, the third skill category pertains to all levels of management, CFO included.  This is what separates a great organization from all other companies. The CFO, backed up by the CEO and with the help of senior managers can set that example. In turn, this will trickle down through the ranks and will make every employee feel they are cared for and appreciated. The results are often profound.

And finally, Administrator is an important skills category. It requires the CFO to not only be organized and well disciplined, but also able to instill these skills and traits in other managers of the company, and most importantly teach them to pass on these traits to their direct reports and to all company employees.

To make these skill categories really effective, the CFO must above all partner with the company’s CEO, who must also posses these skills and fully endorse them. Close communication between the CFO and CEO as well as between the CFO and his/her direct reports will always ensure that the organization is moving in the right direction, be able to quickly change course and most importantly rapidly recover from inevitable mistakes and unexpected negative events.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Should Excel be Expelled?

What applications Excel should and should not be used for and why

I just saw a great question followed by a discussion on the proformative.com site about whether Excel should be completely eliminated  as a financial analysis tool. I was pleased to hear that many people recognize both the value and the risks and limitations of Excel (or any other spreadsheet). I contributed to the discussion and wanted this blog’s readers to benefit from the insight given and my own opinions.

It is a well known fact that Excel is one of the most common software tools in the workplace, not just in finance and accounting, but also in many other areas that require maintaining calculations or data analysis.

Excel (and all popular spreadsheets in the past 30 plus years) is an incredible tool with certain capabilities and functionality unmatched by any other software application.  Unfortunately, we have become dependent on it for far more applications than we should.

Applications such as planning, budgeting & forecasting, consolidation of financial statements and other critical financial processes should not be dependent on and performed in Excel (or any other spreadsheet). The risks of errors, omissions, broken links and the significant effort required to update complex models are far too great, especially given the fact that the practice of change management and internal audit of user computing controls is nearly non-existent when it comes to use of spreadsheets in corporate finance.

However, financial analysis can be performed in Excel as long as the data driving the analysis is primarily produced elsewhere (e.g., a dedicated planning and budgeting software solution, your ERP software, etc.). In this case, Excel should be used for its impressive formatting and display capabilities and ability to link it to data sources.

An example of this is Analytics Maestro from Centage Corporation. This application works within Microsoft Excel and uses all of Excel’s  incredible formatting and display capabilities without the risk of having bad formulas or broken links and without any user programming, as the data is seamlessly retrieved from the company’s ERP software and from Budget Maestro (Centage Corporation’s  planning and budgeting solution). A while ago I wrote on this blog about this new approach to analysis, A new Way to Look at Accounting Data.

Ideally in complex analysis, no actual formulas, links and other computational programming should be maintained in the Excel workbooks. In reality, many analysis worksheets will contain formulas, functions, macros and other custom programming.  These, however, should never be used in the production of financial statements and other critical external reporting activities. These worksheets should be set up under change management with proper design documentation and a change log.  Review and approval of all changes should be evident. Locking down worksheets, requiring access passwords and other security measures will reduce the risk of data manipulation by unauthorized persons.

When risk to accuracy and completeness of data in Excel workbooks or worksheets is greatly reduced, finance organizations will enjoy repetitive and consistent display of data in a familiar format and appearance, making the data simpler to understand and driving decisions quicker and with more confidence.

Microsoft Excel may very well be the most popular software application in the workplace; employees are familiar with its functionality, at lease on the most fundamental level, and get a good portion of their work done using it daily. Once we understand which critical applications Excel should not be used for we can safely continue to use and benefit from this software in many of our other daily tasks.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

How Cash Flow Planning Software Can Save Your Business

How Cash Flow Planning Software Can Save Your Business

Cash flow planning software is about more than simply impressing your investors and letting your employees know that you’re confident in the future of their job security. Cash flow planning itself is a tool that can actually save your business down the road. While it may sound alarmist to say that your business lives or dies by its cash flow, this is absolutely true. Without cash flow planning software, you may be marching your army off a cliff without having the first clue about it.

Streamline the Operation

Your business may be on the up and up and on a constant trajectory toward further greatness. However, there may be pitfalls that are lurking in your cash flow statement that the untrained eye — or perhaps simply a busy and sleep-deprived eye — could easily miss. Sometimes the best place to hide anything is in plain sight, and that can be where a pitfall is lurking. Beginning investors are often warned that fees and charges for unnecessary extras can be the death of their investing career, and the same can often be said of your business. Are there fees or charges for non-necessities that are lurking in your numbers.

While these fees or extra charges may not seem to be enough to derail your business, there is always the chance to use cash flow planning software to find and eliminate waste that could go into your next great venture. As you well know, failing to stay on top of the best new ideas is the perfect way to stagnate. Plus, the more you use cash flow planning software to streamline your operation, the nicer your compensation can become.

Stop Unprofitable Ventures Early On

As you well know, not every idea is a great one. In fact, some are downright awful. There is a reason start-up companies are a dime a dozen — they are often filled with ideas that have no commercial viability. You can often tell early on if there actually is any commercial viability in your ideas simply by running the numbers through cash flow planning software. The issue is often too complicated to run through an in-house spreadsheet because there are simply too many calculations to be run.

Consider that a spreadsheet you build yourself has to be absolutely perfect. You know you are not perfect — you make mistakes and often have to back-pedal to prevent the latest brush fire from destroying the proverbial forest. So do you really want to let the future of your company be broken simply because you forgot to put one extra parenthesis in a single cell of a spreadsheet you were editing at 2 in the morning? A simple error can be the difference between unknowingly diverting massive amounts of resources into something unprofitable and stopping the cost-center in its tracks.

See Where You Can Be Doing Better

Stopping charges and fees that serve no purpose is all well and good, but you can use cash flow planning software for so much more than that. When you have a good process, the numbers generally look solid. But they can almost always get better, particularly if you have not taken much time to streamline the already-successful processes. Eliminating waste is one thing, but building on your current strengths may require solid numbers to shake up an area where you may feel over-confident.

Find and Grow Your Strongest Pursuits

Where are you doing best? While this may not sound like a way to save your business, ultimately you need to grow your strengths to avoid becoming stagnant. In some cases, you may want to avoid spreading your resources too thinly so you can focus on your core competency. While massive companies can often afford to place resources in a lot of pots, if your capitalization is not measured in the tens of billions you may want to focus on strengthening only what you do best. Cash flow planning software can help you by pointing out where those strongest links are. This is great because you can avoid using — or even appearing to use — personal favoritism and biases in your decision to allocate resources into certain areas.

See Early Indicators of a Changing Market

Your market is changing, even if it is in a highly established segment in a mature marketplace. The world keeps turning, and cash flow planning software can help you track where you are in the current landscape. Often, trends begin tiny. Noticing them can help you strike first. You can learn more today. Take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.

This article is made possible by Centage Corporation. Centage Corporation is the world leader in automated, business budgeting and planning software solutions for small to medium-sized organizations. Since 2001, thousands of managers at all levels have utilized the Budget Maestro family of software solutions to streamline their business budgetingfinancial forecasting, financial consolidationperformance analysis, and financial reporting processes. Centage Corporation is headquartered in Natick, MA.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Why Business Budgeting Software Beats Spreadsheets

Business budgeting software offers a large suite of advantages over spreadsheets such as Excel or Lotus. Regardless of the type of business you manage, your modeling, scalability and security reach their highest levels when you use business budgeting software instead of relying on spreadsheets. While spreadsheets are powerful tools, this more advanced software is a higher evolutionary step toward making your business more successful.

Model Creation

Spreadsheets allow you to construct powerful financial models. Unfortunately, this is a completely manual process that can involve numerous links, macros and formulas that can become broken easily. The process is painstaking, and it requires a nearly “software engineer” level of detail to accomplish properly. As a busy executive, you may not have time to be so careful with formula design. By contrast, the integrated business and financial logic functions of dedicated budgeting software allows you to generate reports that dynamically update and that are pre-programmed for your convenience.

Reliability and Scale

Every time you update a spreadsheet, it becomes more complicated and more likely to fail. Even copying and pasting the same formulas gives you the risk of errors that you must carefully check to ensure your company’s budget is maintained accurately. Scaling up to enterprise level can be a daunting task. By contrast, with dedicated budgeting software you have virtually no limits on the amount of data you can enter. The integrity of your data remains solid no matter how large your company or how much information you need to enter.

Formula Introduction

Spreadsheets thrive on formulas, and every formula presents numerous occasions for errors. Every error anyone on the team makes can cost your company tremendous sums of money and time, as well as potentially imposing penalties with regard to payroll, arrangements with clients and with the government. Properly designed budgeting software, by contrast, does not require you to enter formulas. You can focus on analyzing and acting upon your results with confidence instead of scrutinizing every line of a spreadsheet.

Accurate Data

Data requires accuracy and integrity. With spreadsheets, every cell can contain any data, which can easily be corrupted by even the smallest of human errors. Using effective budgeting software, stakeholders can add assumptions that can be verified across the board with consistency. The structure of this software allows the administrator to control the entire environment, which keeps the data and assumptions consistent and clear.

Group Accountability

If you have ever attempted to keep a spreadsheet accurate when more than one person contributes to it, you know how challenging this can be. You may even resort to emailing the spreadsheet from person to person on a regular basis, similar to the children’s game “telephone.” Rather like that game, there is almost invariably a break in the data when one person is unavailable for any reason. Worse, if someone involved in the spreadsheet leaves your company, the chain can be compromised, which can take months of forensic accounting to sort through. Budgeting software is different from spreadsheets in that it can be centrally hosted, and each contributor’s contribution is known and added instantly. There is no “editing” required on the administrator’s part.

Security

Managing the security settings on a spreadsheet can be a logistical nightmare that grows larger with each cell. Every workbook, every worksheet and every cell must have individual passwords that must be changed regularly. This is crucial to keeping unauthorized individuals from seeing information they are not privy to and for keeping authorized users from mistakenly changing something important, which can be as easy as entering their relevant information in the wrong cell. Budgeting software removes this problem by keeping user roles and security protocols within the individual’s realm of responsibility. This prevents tampering and minimizes the potential for errors to a given user’s area, which they can correct quickly once the error is spotted. These security features also limit how many errors a given user can make, which keeps the burden of reporting much smaller for each individual.

Thorough Documentation and Simplified Training

By definition, every spreadsheet is individual and custom-designed. While you can create your own documentation, this is challenging and takes time away from important decision making. You also have to allocate time when introducing anyone to the spreadsheet to explain it in detail. Budgeting software differs from this because there is professional documentation provided. Because the documentation is professionally produced, you can save a large amount of time that would otherwise be spent training new or transferred employees in the use of this budgeting software.

Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planningfinancial forecastingfinancial consolidation and reporting processes. For more information, take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

What Criteria do You Use to Select Your Planning, Budgeting and Analysis Software?

Why the obvious solution may be your worst choice

About a year ago I was looking at various software solutions that assist companies with the planning, budgeting, forecasting and analysis processes. I was surprised to see how many choices were available, even in the SMB (Small & Medium Business) market. There was a mix of server based (on premises) and web based solutions and certain applications claimed to be suitable for larger enterprises. Cost of licensing, subscription and software renewal fees varied among the different products and labor and consulting fees to implement these systems also ranged from modest to very expensive.

What I also realized during this analysis was that the most common tool in corporate planning and budgeting is still the spreadsheet (more accurately a set of spreadsheets or workbooks). Microsoft Excel dominates this, and the level of sophistication ranges from simple revenue and expense worksheets with basic consolidations, to extremely intricate systems containing hundreds of workbooks and worksheets, linked together and having certain reporting capability.

I attribute use of spreadsheets for planning and budgeting to the early days of personal computers when dedicated budgeting software did not exist. Spreadsheets are also very common in the workplace and all finance and accounting personnel are familiar with them.

As dedicated software solutions became more available more and more finance managers and professionals began to realize that spreadsheets are not the right tool to use in these processes and for good reasons as explained in these blog posts: Replace Excel with a Dedicated Planning, Budgeting and Analysis Solution and Forecasting a Balance Sheet in a Spreadsheet World.

The strong arguments against use of spreadsheets are the main reason for the existence of dedicated, database-centered applications intended for implementation and maintenance of a corporate budget and analysis process. This approach has become quite popular even in smaller companies and there are a variety of applications available to choose from.

Unfortunately, in designing many of these budgeting software solutions, their designers, while doing away with use of traditional spreadsheets, and adding important security and workflow functions and controls, failed to realize that their users were still required to enter formulas, functions and links into their plan or budget models. In fact, many of the traditional drawbacks found in spreadsheets are also present in these budgeting software applications.

Those who implement these types of applications quickly discover that building and maintaining a budget is not much different than using a set of spreadsheets. The risk for errors creeping into the model is the same as in traditional spreadsheets; maintenance is just as hard, change management controls are mandatory and rather complex; adding drivers and allocations, and configuring the system to output even a rudimentary Balance Sheet and a Statement of Cash Flows requires much knowledge and experience, often resulting in significant consulting work, services gladly provided by the software vendors.

Fortunately, there is another approach, providing the best of both worlds: A complete departure from the spreadsheet environment, while allowing budget and finance managers to build a budget without using a single formula, function, macro or link. This approach employs built-in business logic and rules and the ability to employ an unlimited number of drivers, setup to suit the specific needs of every organization.

Of particular importance is the automatic system generation of all future period financial statements, including a Balance Sheet and a Statement of Cash Flows, besides an obvious P&L.

Examples and explanations of this approach can be found here: 10 Must Have Features of a Budgeting & BI SolutionThose Debits and Credits, or A Modular and Automated System for your Annual Budget Process.

It is good to know that there are several choices when it comes to selecting a planning and budgeting software application. It is, however, wise to realize that applications that seem natural for this function may not be the best choice and in the case of the most obvious solution, the spreadsheet, the worst possible one.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

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, 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.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

Think you can rely on spreadsheets for financial applications?

Think again. They probably are not as complete, reliable and accurate as they appear to be.

Earlier this summer I was on an internal control engagement at a local publically held company that must annually comply with the Sarbanes Oxley act concerning internal control over financial reporting, management disclosure and attestation by an external auditor. This process recurs every year and following the audit the external auditor gives an opinion before the company can file its annual report (FORM 10-K).

Since this was not my first year on this engagement I knew the company had certain deficiencies with IT change management and with end user computing controls. These are usually internal controls over the design, implementation and use of end-user programmed databases and spreadsheets used in financial and accounting processes that affect external financial reporting, and the control environment over changes made to these databases and spreadsheets.

As is the case with many companies, this organization had an infinite number (so it seemed) of Excel spreadsheets that were designed and maintained by many employees, practically in every department of the company.

For the purpose of my engagement I was only interested in spreadsheets used to compile and consolidate financial information that was used in the preparation of external financial statements.  I identified several of these spreadsheets; some were very complex where data from many sources were consolidated into a set of reports.  These spreadsheets also included inter-company eliminations and other formulas, functions plus macros and VBA code.

As is required in this type of engagement, all deficiencies were reported to the company management and it was up to them whether or not to further disclose them in the filing.  The external auditor’s job was to audit the control framework both for design and effectiveness of controls and form their own opinion, requiring management to disclose certain material weaknesses, defined as severe deficiencies, or a combination of deficiencies aggregated to a material weakness.

It is common with spreadsheets used in accounting, finance and reporting to have little or no internal control over critical spreadsheets which implies that:

1)   There may be undetected errors and omissions in one or more of the worksheets included in one or more workbooks.

2)   There may be undetected erroneous or broken links among the many worksheets (tabs within one workbook), or workbooks (separate Excel files).

3)   Formula and function cells and other critical areas of spreadsheets may be at risk of being unprotected from accidental erasure of data, tampering with formulas and links, etc.

4)   Changes to cells, formulas, functions, links, macros and other VBA code usually performed by the original authors of these spreadsheets may introduce new or additional errors to these spreadsheets.

What this implies is that financial statements compiled with the use of Excel spreadsheets may be flawed due to undetected errors.  I recently wrote about this topic in an article published in Accounting Today.

These are the financial statements that are filed with the SEC (by publically held companies), and / or given to shareholders, bankers and other persons on a periodic basis.  Unless the errors are detected either by internal audit or by the external auditors, misstatements will occur and may not be detected for a long time. Restatements of financial statements are often the result of detection of erroneous financial statements.

Use of spreadsheets to compile financial statements without a solid internal control framework and change management is a bad idea. So is use of spreadsheets in other important financial processes, such as corporate planning and budgeting.

Fortunately, similar to certain ERP solutions where consolidated financial statements can be produced without use of spreadsheets (requiring specific setup which many companies simply prefer to ignore), there are planning and budgeting applications that do not rely on spreadsheets. These are always preferred to the use of spreadsheets.

Unfortunately, among these “purpose built” financial applications and primarily planning and budgeting applications, many still rely on user supplied formulas, links and other programming, which in addition to significant amounts of time and effort to design, implement and maintain, always pose risks of errors and omissions and ideally require an mature internal control environment over these processes, rarely seen in most industries.

This leaves us with only one sensible option:  Implementing financial applications that are not only removed from the spreadsheet environment but also do not require user-designed formulas, functions, links or other programming code.  I see this as an emerging product category in the years to come, with anticipated positive acceptance by finance managements of many organizations.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

The Power of Financial Dashboard Reporting

Often, companies seek out help because they are either in the process of implementing their first financial dashboard and would like advice on the process or because their dashboard is not working to the level they need it to. In some cases this comes down to having never used a financial dashboard due to its relatively recent addition to the business world, but in other cases this is because many companies are still quietly hesitant about the entire process.

Many senior managers have been working since the 70s and 80s, when finance was handled with ticker tape and line after line of grinding out the numbers. Even those who worked in the highest tech companies often started working with spreadsheets and have continued to do so for their entire careers. Switching to a financial dashboard, where there may be a large number of options for the UI and no formulas that can obviously be adjusted can feel bare, or worse it can even seem incomplete. The shift from a medium that involves long, hard hours to a new format that can provide you with massive amounts of information distilled into a few select data points is as much a mental and emotional shift as a physical shift in how your company is run.

Selecting Your KPI

One of the fundamental problems with using spreadsheets is that it allows you to get lost in the numbers. While this can be psychologically comforting, as this has been the state of so many businesses for so many years, this comfort can be a trap. With a financial dashboard, you have the power to select a massive number of different KPI variables that can come from an almost unlimited number of data sources around the world. The largest challenge for many CFOs is to accept that their direct input and “number crunching” is no longer necessary, as the numbers are processed in the cloud.

However, there is another challenge that can be just as daunting. This involves determining whether the key performance indicators you used to consider most important when you used spreadsheets are actually the most important ones now that a financial dashboard is available. This is where your judgment as a finance professional comes into play, as well as where you may end up having to defend your decision to the CEO and the Board. You may even find that your initial changes may not be for the best under conditions you may not have been able to identify before.

Modify KPI Variables Within the Financial Dashboard

You have two primary concerns when you are adjusting which performance metrics are your KPI: the purely financial and the psychological. When it comes to finance, this is your company and your domain. Often your decisions will be based around telling the story of your company in a way that is both pleasant and legally compliant. This has less to do with finance itself and far more to do with psychology. Presenting your company’s numbers to the CEO and the Board of Directors may be more effective by selecting equally accurate but more positively-influencing variables.

Consolidate Your Data

Data consolidation is among the most important parts of using a financial dashboard. The sources of data and potentially thousands of spreadsheets from across the company that many businesses use to inform their numbers can quickly become unwieldy, even in the hands of dedicated professionals. The consolidation that happens within the dashboard allows you to easily read the results of numbers from across the company without having to rely on any formulas, giving you more time to focus on the financial health of the company.

Use Your Time Most Efficiently

As an executive, every moment of your time is precious. Traditionally, the model was to work harder and longer hours if the numbers did not immediately tell the story and provide all of the information you needed, but there simply are not enough hours in the day to do that with today’s businesses. The complexity is too great, and there are too many important decisions to make to become bogged down in documenting the details instead of acting on them. The documentation can be handled easily by your financial dashboard with nearly zero use of your time and with absolutely no “busy work” on your part in reviewing the vital numbers. For more information about how financial dashboard’s work, take a tour of Analytics Maestro.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, business budgeting software, cash flow, cash flow analysis, cash flow budgeting, cash flow reporting, financial planning software, forecasting, payroll planning, personnel planning, quickbooks, scenario planning, spreadsheets, variance analysis, what-if analysis, what-if scenario, workforce planning Tagged , , , , , , , , , , , , , , , , , ,