The Budgeting and Forecasting Experts Blog

Are Financial Planning and Cash Processes High Priorities on Your List?

See what industry experts and companies’ finance executives think

I recently read the results of the 2015 Finance Priorities  survey conducted by the global business consulting and internal audit firm Protiviti which confirmed my observations and experience working with clients in a variety of industries. To quote the first three most important findings, which also represent the top priorities of finance executives:

1.       Finance functions are striving to gain greater visibility toward the “cash” horizon.

2.       Finance executives are placing more importance on strategic planning, risk management, executive dashboards, profitability analysis and other strategic areas of financial analysis.

3.      Finance functions want to manage and improve related processes in a comprehensive manner.  Strategic planning, budgeting and forecasting rank among the highest priorities in the entire study, which demonstrates as intent to strengthen overall corporate performance management.

This clearly confirms that corporate strategic and financial planning is not only essential but also greatly recognized as such by the 372 participants in this survey who are a good representation of finance executives and managers across many industry sectors.

The conclusion is that strategic planning, budgeting and analysis must be an integral process in finance, with its results clearly and timely communicated to executive management, the Board of Directors and certain shareholders.  I am encouraged that the survey participants have recognized this and correctly voiced their opinions.

As the number one finding in this survey indicates, Cash remains the most important component in finance.  It is cash that allows a company to grow and achieve its objectives, but also to survive in difficult economic times.  A company can be very profitable according to its income statement, yet suffer a chronic shortage in cash and lack the ability to meet its cash obligations or finance its basic operations.

As a business owner, CEO, CFO or finance executive, you must be able, at all times, to forecast the cash balance at each accounting period and how much cash will be required in each period in order to meet obligations arising from business expenditures, purchase of inventory, incurring payroll and related expenses, acquisition of assets, loan and line of credit payments and other cash related transactions.  The sources of cash are from customer account collections (AR), borrowings from lines of credit, issuing of long-term debt, selling shares in the company, and from sale of assets.

Since there are many accounting transactions affecting cash every day, its balance will fluctuate during the accounting period and over a period of time you will notice an upward or downward movement of this balance as measured at the end of each period.  Similarly, if you rely on a bank line of credit to finance your operations, you may have a zero balance in your operating account and your line of credit balance will fluctuate.

Whether it’s the cash balance, the line of credit account balance, or any long term loans, you need to know and well in advance what these balances are going to be and whether or not you will have access to this cash and how much.  This is part of a prudent and disciplined planning and budgeting process, every responsible finance organization should employ.

Those who use traditional methods to forecast cash and other budgeted data, by using spreadsheets with their inherent limitations and likelihood of errors, or perhaps, upgrading to a purpose designed planning and budgeting solution that requires users to perform extensive programming and provide formulas, functions and links, have discovered that cash planning and forecasting is not trivial.

The fact is that many organizations are not able to forecast cash, credit line utilization, loan covenants compliance and other key finance ratios and operational KPIs despite the fact they have implemented expensive and seemingly powerful software solutions.

My blog entry titled: “Cash Flow Statement: One of your Most Trusted Tool” demonstrates how the finance organization can obtain a complete and accurate Statement of Cash Flows for all budgeted accounting periods, using the existing planning and budget data.

The second and third findings of the Protiviti survey provide clear evidence that many finance organizations are still struggling with achieving timely and meaningful financial analysis, using both planned and actual data.  This implies that spending money and effort on sophisticated systems may not be the right solution if these systems fail to provide the required output or the outcome expressed as highly desirable in these top three survey findings.

Several of the blog entries on this site are focused on the importance of periodically planning and budgeting and continuously analyzing both actual and budgeted data; good examples are: Why CFOs Need to Adopt Financial Analytics“ and A Physical and Mental Health Predictor? A Budgeting Analogy.

I continue to marvel at the accomplishments of Centage Corporation with its Budget Maestro with Analytics product line and have written about this solution and referenced it throughout this blog. The conclusion those familiar with this product must come to after reading the Protiviti survey results is that the Budget Maestro product line delivers and overcomes two of the most common challenges that finance organizations face:

1.      Providing a clear, accurate and complete visibility into the “cash horizon”.

2.      Allowing the construction of a strategic plan driving a financial plan, year after year, and real time analysis into the future, present and past Analysis of Everything.

Having these top priority challenges conquered is no trivial feat. I am glad that a sensible and effective software solution that does just that actually exists.

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 Tagged , , , , , , , , , , , , , , , , , , , , , , , ,

The Candid Customer: A New Q&A Series

Welcome to a new series on the “Budgeting and Forecasting Experts Blog” – The Candid Customer! We are committed to sharing the best budgeting and forecasting best practices, so who better than our very own customers to give you an inside look at their budgeting and forecasting journey? Each month you’ll hear from financial professionals just like you who are working hard to empower their organizations with the most accurate, relevant financial insight. This week Controller Mark Howard from Pumps, Parts & Service, Inc., shares his thoughts on how Budget Maestro has changed his company’s annual budgeting process for the better. Leave us a comment and let us know how you like the series!

Q: Tell us about your business?

A:  We are Pumps, Parts & Service, Inc. (or PP&S) based in Charlotte, NC. We are a regional wholesale distributor of rotating and process equipment for the municipal and energy markets as well as industrial clients, including steel and chemical manufacturers. We have been in business for over 30 years and today have nearly 60 employees across five regional sales and service centers in the Southeast covering Alabama, Georgia, North Carolina, South Carolina, Virginia and the Florida panhandle.

Q: What was your budgeting challenge?

A: We needed to improve our annual budgeting process. The annual budget was typically built in large, complicated Excel spreadsheets with embedded formals and the multi-tabbed spreadsheet included complex revenue models and personnel expense models for each of our five business units. It was so cumbersome that it often required seasonal help from outside accountants to prepare budget data!

Q: Did you look any many solutions to solve your budgeting dilemma?

A: Yes, we looked at three different options including budgeting software packages from Prophix, Adaptive and Centage.

Q: Why did you choose Budget Maestro initially?

A: Budget Maestro was very intuitive and the workforce planning module was especially attractive as we needed to get a better handle on our personnel expenses across each business unit. Plus I liked that the software was offered both as an enterprise version and as a single seat license.  The ease of use, coupled with robust reporting and drill down capabilities made Budget Maestro the right choice for us.

Q: Now that you have been using the product what do you think?

A: By implementing Budget Maestro to streamline the planning and forecasting, we’ve been able to considerably improve the annual budgeting process. We can now merge data from General Ledger accounts and manipulate the data by key account, territory, or business unit to develop top line revenue. The product’s drill down capabilities then allows me to view the data in smaller denominations like health benefits and 401(k) expenditures. Plus, I can isolate certain expenses and flag inconsistencies quickly which means I can concentrate on managing the process and planning for results instead of double checking Excel formulas.                                     

Q: What is one of your favorite things about the product?

A: In addition to Budget Maestro’s functionality and stability, the support has been great – even after seven years!  You can tell the Centage team is committed to helping each customer understand the product and how to best use it for their specific budgeting and business requirements.

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 , , , , , , , , , , , , , , ,

Replace Excel with a Dedicated Planning, Budgeting and Analysis Solution

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

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

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

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

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

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

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

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

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

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

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

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 , , , , , , , , , , , , , , , , , , , , ,

Become Your Company’s Chief Future Officer

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

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

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

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

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

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

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

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

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

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

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

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

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 , , , , , , , , , , , , , , , , , , , , , ,

Accurately Calculate the Total Cost of your Employees

How to best approach planning & budgeting of payroll and related expenses

A while ago there was a member question on the site about calculating total cost of employees.  This question has come up several times on this forum in recent years and clearly represents a challenge finance personnel and departmental managers face.

I personally remember struggling with calculating total employee costs at several companies I worked at or consulted to, especially when we had to fully absorb these costs in inventory, excluding non-production employees and those who were part time in production and part time in SG&A.

Some payroll systems I have worked with in the past could provide the straight time and overtime cost per employee in each accounting period, holiday and vacation time expense and bonus expense, but were not capable of clearly itemizing the additional expenses (known as payroll related expenses) in detail per employees.

These are expenses such as Social Security Tax (employer portion), Medicare (employer portion), Additional Medicare Tax (for certain employees over a certain earning threshold) and unemployment taxes (SUTA and FUTA).  To that you must add additional payroll related expenses such as 401K plan employer matching, health insurance portion covered by the employer and other expenses that must be tracked and budgeted for, such as cost of supplies per employee, cost of IT per employee, etc.

These payroll and related expenses can be calculated in a spreadsheet, knowing the various rates at the time of calculation and adding up all the expenses per employee, per department and so on.  What makes it difficult is the fact that some expenses go away during the calendar year and then start over in the beginning of the following calendar year.  Social Security tax and FUTA are good examples, and knowing the annual cap one can program this into the same spreadsheet and cause these expense to disappear once the annual cap has been reached.

Another challenge faces companies whose fiscal year end is not December 31st.  These companies must devise a clever way to track payroll expenses during their fiscal year while accounting for them (for reporting and compliance purposes) using the calendar year.  This is also possible using a spreadsheet, but like many other complex spreadsheets, it becomes exceedingly more difficult to maintain and audit for errors and omissions as the number of employees increases.

As in all complex spreadsheets, these spreadsheets will require careful placement of many formulas and functions, possibly even macros and other complex VBA code.  What makes it more challenging is the addition and deletion of employees during each calendar year, anticipated pay raises and bonuses based on projected performance and certain other changes, which make the maintenance of these worksheets very difficult.  In fact, without proper change management control and internal audit, these spreadsheets are more than likely to contain errors and omissions, some of which may be material.

It is the general consensus of many accounting and finance professionals that spreadsheets are not the right tool to use in a very complex environment with many linked worksheets, linked workbooks and consolidations, and having to endlessly maintain records in many of these worksheets. Payroll planning and budgeting is a good example where spreadsheets should not be used.

While I was thinking about this challenge I remembered how easy it was for me to maintain employees and payroll costs in a planning and budgeting solution with a dedicated Personnel Module.  The application is Budget Maestro, published by Centage Corporation where the Personnel Module is an integral piece of the application and can be deployed either standalone or in combination with any module within the system.

Budget Maestro’s Personnel Expense Module overcomes all the problems and challenges listed above.  It is driven by built-in business rules and payroll taxing authorities’ existing rates.  Regardless of your fiscal year-end date it knows precisely when to stop charging Social Security Tax expense, FUTA and any other payroll related expense that has a peculiar behavior during the payroll year.  This is in addition to applying the correct tax expense in each tax category, as posted to each applicable GL account in each planning period.

As employees’ salary or hourly rates increase (or decrease) during the planning period (a year, 18 months, 24 months or whatever your plan’s length is), the correct payroll tax expenses are properly posted in the right period.

With the unique feature of posting expenses to the planning period via a system of automated journal entries, payroll expenses become an integral component of the planning and budgeting process, which means they are completely and accurately reflected in all financial statements and reports automatically generated for each planning and budgeting period.

What I like about Budget Maestro’s Personnel Module is that you can plan in as much detail as you like (down to the individual employee in each business unit) or on a higher level in certain areas of the business.  This is very useful in manufacturing operations where you can have multiple employees in a certain department (e.g., fabrication), having similar pay rates and starting in the same planning period.

For example, you may add five fabrication employees in May of 2015 at a base rate of $18.50 per hour, then six more in the following period, and so on.  You don’t need to list each of these employees individually; just the position type with the number of employees, their start date, rate and any anticipated increases or decreases. The system will use the data you provided and using its built-in business rules will expense everything properly in the right planning GL accounts and in all the relevant planning periods.  Future period financial statements and all other reports will automatically reflect that.

I find a remarkable capability of the Personnel Module in not having to place any formulas, functions, macros and links anywhere in the program, which is also true for all the other Budget Maestro planning modules (revenue, fixed assets, debt, etc.).

Another great thing about the Personnel Module is that it is 100% included in the licensing fee of the Budget Maestro application.  Use it standalone or in combination with other modules as your needs dictate, or add your personnel planning data into an already existing plan.With the Budget Maestro Personnel Expense Module you will always have a complete view of your payroll and related expenses with clear and accurate reports, making your employees total cost part of the overall budget.

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 CFOs Need to Adopt Financial Analytics

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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 , , , , , , , , , , , , , , , , , , , ,

Closing the Books Faster?

The benefits of a quicker close process…

Hyoun Park, founder and principal consultant at DataHive Consulting, recently posted “Five Steps to Closing the Books Faster” on  He listed five steps that an accounting and finance department take in order to close the accounting period quicker.  “Closing” faster has been a popular topic of discussion as it enables management, lenders, shareholders, auditors, etc. to have financial results on which so many crucial decisions are made upon.

In recent years, many publically traded companies have experienced shortened filing deadlines of their annual and interim reports.  For example, accelerated filers must file an annual report within 75 days of their fiscal year end, yet large accelerated filers only have 60 days to complete this filing the FORM 10-K.  Similarly, quarterly reports are only given 45 and 40 days from quarter end, for the type of filers described above respectively.

This means that there is less time to perform annual audits and quarterly reviews.  To add even more pressure to the deadlines, additional compliance activities, such as auditing of certain internal controls must be performed in conjunction with close activities.

Non-SEC filers, like privately held companies and not-for-profit organizations, for example, also strive to shorten the close period.  Those who undergo an annual audit of their financial statements and quarterly reviews by an external auditor must be able to have all pertinent financial data and internally prepared financial statements ready for review or audit.

Although currently much less common, some financial and accounting systems make it easier to perform transactions in a new period when the previous period is closed.  Errors of posting to a previous, open period can be prevented.

In addition to the benefits mentioned above, additional incentives are:

  • Management can receive and review financial statements sooner.
  • Consolidation of financial statements, including inter-company eliminations can start earlier in the cycle.
  • There is more time to review the financial data and prepare more complete and accurate financial statements with proper disclosures and footnotes.
  • Less overall time and effort is spent by the accounting and finance departments each accounting period with a more streamlined process.

Lastly, there is the benefit of having final, actual accounting data available to the finance group using planning software for analysis against an approved budget and periodic re-forecasts.  The quicker this data is available for analysis, the quicker managements can review it and make timely and informed decisions.

Companies that use planning and budgeting solutions with integrated financial statements can benefit from having good insight into the future financial health of their organizations by comparing the forecasted statements with their actual counterparts, as soon as the accounting period is closed.  Closing the books faster can be a challenge for many organizations.  However, with the proper planning and discipline, the benefits are significant.

Tags: analysis, budget maestro, budget software, budgeting, budgeting and forecasting software, budgeting and planning, budgeting software, cash flow, financial planning software, spreadsheets Tagged ,

Cash Flow Statement: One of Your Most Trusted Tools!

And why you need better control over the preparation of this statement…

I just read article “SEC Nudges Companies on Cash Flows”, written by Compliance Week author, Tammy Whitehouse.  It refers to a study done by the SEC of cash flow restatements, as conveyed by T. Kirk Crews, Professional Accounting Fellow, Office of the Chief Accountant, U.S. Securities and Exchange Commission.  Findings suggest that the majority of errors were due to poor internal control over financial reporting, as well as too much reliance on end-user computing tools, such as spreadsheets. The article continues to explore the various possibilities leading to these errors, and stresses the importance of having the right processes in place with the appropriate internal control framework and full understanding of FASB ASC 230 – Statement of Cash Flows.

The statement of cash flow expresses a company’s results in terms of debits and credits to operating, investing and financial activities by the company, without adjusting for accrued revenues and expenses. It does not show whether or not a company is profitable.  However, it does in fact show the cash position of the company at a specific date by measuring revenue against outlays.  While a cash flow statement is required by the SEC in FORM-10K and FORM-10Q filings, as well as a common practice in all audited and reviewed financial statements prepared by external auditors for privately held companies, a forecasted Statement of Cash Flows is rarely seen in the budgeting and forecasting process.

Why is the Statement of Cash Flows so important?

The Statement of Cash Flows shows the sources of all cash receipts and cash outlays segregated into the following categories:

1)    Cash Flows from Operations
2)    Cash Flows from Investing Activities
3)    Cash Flows from Financing Activities

Whether the direct method or the indirect method are used, all cash receipts from customers, loan proceeds, sale of company stock, sale of assets and other sources are clearly listed on the statement, each appearing in one of the three categories listed above.  All cash outlays such as payments to suppliers, employees, taxing authorities, interest payments, payments for investments in other entities, and payments for acquisition of assets also appear in these three categories.

Budget Maestro Cash Flow Report Tile

In the case of a forecasted Statement of Cash Flows used for planning and budgeting, the benefits of having an accurate and complete statement are projecting and understanding:

1)    How much cash will be received in each planning period from the three identified cash flows categories.
2)    How much cash will leave the organization via payments to suppliers, employees, taxing authorities and other entities, segregated by the three cash flows categories.
3)    Cash requirements during the planning period and arranging for financing, sale of assets and other activities in order to meet the anticipated cash needs and well ahead of time.

My observation and experience is that many ERP and accounting software solutions do not produce an accurate Statement of Cash Flows, leaving users to either program it themselves in their ERP system or resort to using spreadsheets.  Spreadsheets are neither an effective nor efficient tool to produce financial statements.

The solution is to have more ERP and accounting software vendors provide a pre-programmed template for this statement where users can link their GL account or account groups to various components of the Statement of Cash Flows.

As far as planning and budgeting solutions are concerned, I’d like to see an integrated Statement of Cash Flows, with an integrated balance Sheet and Income Statement.  These statements should be automatically generated from the aggregation of all user forecasted data and with the use of the beginning Balance Sheet account balances, and will produce a complete and accurate set of financial statements for every period in the budget.

Readers of this blog know that with a software application like Budget Maestro, forecasting an accurate and complete Statement of Cash Flows is reality.  An accurate and complete Statement of Cash Flows is at the top of my list, along with the Balance Sheet, both for actual accounting and for budgeting.  There is little wonder now why the SEC is urging companies to take a closer look at their internal control over financial reporting, particularly the preparation of the Statement of Cash Flows.

Tags: 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, spreadsheets Tagged , , ,

A Physical and Mental Health Predictor? A Budgeting Analogy

Probably not in the near future but your business can (its financial health that is)…

I just left my doctor’s office after completing my annual checkup.  While everything seemed to be in order I had a quick discussion with him on whether or not it would be possible with the new advances in medicine to accurately predict one’s future physical and mental health based on their current health, family history and perhaps other factors.

Imagine a system where all your health history, current vital signs and other pertinent information was in a computer database and while performing certain tests, the additional information was added to the existing data and a forecast or prediction of your future health became available to read and analyze.

This seems rather futuristic and perhaps unattainable. Nonetheless, it is a very intriguing idea.  What if we could start a preventive maintenance program in response to some prediction of a future health issue or disease?  This would be in addition to using existing well-known methods of maintaining health through proper diet and exercise.  Of course, some people may not want to know their future medical and mental health for various reasons but I think the majority of us will want that.

While we would have to wait for this technology to become available, we do have the ability today to predict and forecast a different kind of health.  What I am referring to is the future financial health of a company.  Unfortunately, many organizations are not aware of this, or are so wrapped up in their old financial processes that this hasn’t yet become reality.

Many companies that prepare their budgets and maintain them through re-forecasting often don’t fully benefit from these activities.  Even if the budget does not remain static throughout the budget time horizon, the information obtained from this process is limited and sometimes misleading.

Here’s a good example:

A budget only generating a forecasted income statement (P&L) for each period in the budget does not even begin to tell the entire story.  Without a budgeted balance sheet (and the derived statement of cash flows) you cannot forecast vital information such as available cash balances, cash needs, future receivables and inventory levels, future payables and other debt obligations, ability to meet loan covenants and many other crucial pieces of information.

You may have an insightful forecasted set of revenue lines and expenses.  However, can you say with confidence that you’ll be able to achieve these revenues at the forecasted costs?  Will you have sufficient cash to do that?  What about maintaining debt covenants?  Will your inventory levels and accounts receivable be sufficient for you to adequately draw on your line of credit?

The answer to these questions is no.  With only a forecasted income statement you can’t possibly forecast the financial health of your company in future periods.

What about the available technology?

Observing advancements in finance software in the last 10-15 years, I see a new trend emerging:  A complete planning, budgeting and analysis software solution that takes all user programming and formula work out of the process, while allowing users to collaborate on preparing a budget, using pre-defined system business rules, working with drivers and other allocation tools and automatically generating a complete set of future period financial statements.

Budget Maestro with Analytics Maestro is a great example of such a system.  When you are able to gain insight into the future financial health of your company you are able to better plan for the future, make more intelligent decisions and avoid mistakes.  Since we cannot yet predict our future physical and mental health let’s stay healthy doing what we know today but forecast the future financial health of our companies with the technology that is here now.

Tags: 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, variance analysis