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Understanding Budgeting: Spreadsheets and Beyond

While most large companies have already liberated their budgeting process f rom spreadsheets, many small and medium-sized businesses still manage the dif f icult and error-prone process of budgeting on these same challenging spreadsheets. T here are many problems associated with spreadsheet-based budgeting as well as many advantages to new technologies designed to automate the process and ensure greater accuracy. SMBs should plan their transition to a budgeting solution that delivers more collaboration but with more control, accountability and budget compliance. Warning Signs T hat Your Budget Process Has Outgrown the Spreadsheet T here comes a point when a company's reliance on spreadsheets f or budgeting becomes an impediment to ef f ective decision-making and analysis. T here are several clues to detect this transition point bef ore it leads to severely inef f ective decision-making , lost productivity and lost opportunities. No single version of the truth guides or emerges f rom the budgeting process. Ownership and accountability by business users have disappeared and control over consolidating the budget has been concentrated to a single person. Executives can't answer the f ollowing questions: Who are my most prof itable customers? What managers are the most productive? What product line is most prof itable? Why are certain metrics "out of sync"? Financial statements are not f ully integrated because it is too time-consuming to set up or the model was modif ied too many times to ensure no errors. Detail becomes impractical and almost unattainable. Spreadsheets grow so large that budgeting f or some line item expenses or revenue items is done only at a consolidated summary level. Budget calculations become too complex f or most budget preparers to f ollow and the model gets too large f or users to assimilate. It takes more time to manage and maintain the spreadsheet than to perf orm the actual analysis and planning. T he budgeting models break f requently with changes to data structure or roll-ups. T here are data integrity issues mistyped data, broken f ormulas, missing links, logic errors that make budget models unreliable. Comparing current year actual results to plan and/or last year's actual results is a manual, cut-andpaste exercise that takes too much time, invites errors and slows down month-end analysis and reporting. Summary or high-level variance analysis lacks underlying detail. It's dif f icult to accurately track payroll , taxes and benef its expenditures f or all employees, including contract, part-time, and seasonal workers, resulting in over- budgeting f or payroll taxes such as FICA or underestimating total employee costs impacting year-end cash f low. Def erred revenue projections (f or projects, maintenance contracts, royalties, renewals, subscriptions, etc.) are too complex to model, requiring the layering of multiple revenue schedules within multiple periods to create the waterf all ef f ect. Benefits of Budgeting with a Packaged Application

An attractive solution f or replacing the spreadsheet is the use of innovative technology solutions designed to automate the budgeting process, allowing your f inancial leaders the f reedom to f ocus on more strategic initiatives and f eel conf ident in the f inancial f uture of their organization. Key benef its include: Greater accuracy Formulas f or your models are based upon your assumptions and workf low, utilizing built-in f inancial intelligence and business rules to ensure complete accuracy. Centralized database Any changes to estimates or assumptions are automatically updated in real time so everyone is working with a single version of the truth. An easier-to-use common interface Applications are built f rom the business perspective to maintain consistency with business entity names rather than database conventions. Accounting application integration Automated processes will import data f rom commonly used accounting applications, with the ability to support a rolled-up budget and f orecast f rom multiple systems. T his expedites data transf er and minimizes errors. Reduced programming Eliminate the need f or spreadsheet-type f ormulas, and theref ore errors, your budget and f orecasting model become an accurate ref lection of your business. Contingency planning and sensitivity analysis with "What if" scenario generation Users can change variables to see their immediate ef f ect on outcomes. A series of models can be replicated, enabling additional analysis and comparisons. Integrated reporting Generate prof it/loss, balance sheet and cash f low statements automatically and can be customized to your needs. Collaboration Involvement and collaboration by more end users and contributors to the budget process. First Steps Toward Enterprise Budgeting A best-practice approach to moving beyond spreadsheet-based budgeting would start with these steps: Fully understand your current budgeting model. It's likely to contain embedded assumptions, f ormulas, reporting requirements and experience that are important to transf er over to a packaged application. Determine what works and what does not work in your current process. For example, if your particular business model requires the bottom-up f orecasting of many participants, you need a packaged application with strong collaborative f eatures. Create the vision. Project the ideal vision of your budgeting process, including who would participate, what integration would be helpf ul, which general ledger or other transactional systems 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? By documenting their needs, you can set the stage f or 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.

T he primary benef it of graduating f rom pure spreadsheet budgeting to an automated process based on innovative technology solutions is a more accurate, inclusive and timely budget with signif icantly reduced cycle time. Companies of ten report that they can move f rom annual budgeting to quarterly budgeting as a result. Faster, more inf ormed budget-related decisions can also be enabled. For the SMB, the ability to assess prof itability by product line, customer, region and channel in real time helps determine where to put resources, cash, and personnel. T he enterprise budget gives a complete view of your f inancial organization, blending top-down and bottom-up perspectives, and incorporates historical and f orwardlooking inf ormation to empower your f inancial leaders to f eel conf ident in the f inancial f uture of your organization. The views expressed are those of the author and do not necessarily reflect the views of the publisher.