Laurens Abada, CFO of Carpio, a member and supporter of the Council for Entrepreneurial Development (CED), writes about the challenges, opportunities and benefits involved in evaluating the management of planning, budgeting, forecasting and reporting.
Marco Fregenal, CEO of Carpio, is speaking in the upcoming November 18 CED Entrepreneurs Only Workshop on the importance of building corporate culture.
One area that is an important, but often low level priority, for organizations is corporate performance management (CPM), frequently referred to as the next generation of business intelligence (BI). Given the recent financial meltdown, companies of all sizes are finding themselves either happy that they moved away from pure spreadsheet planning or bemoaning their inability to quickly model financial scenarios, which consequently hinders their visibility into their financial past and future.
77% of SMB companies depend extensively on spreadsheets for budgeting and reporting. In a November 2006 planning survey, BPM Partners found that current outmoded processes were having a negative impact on business performance.
52% of midsize companies reported it took 3 months or longer to complete the budget process 28% of time was wasted on low value activities: distribution and fact checking
88% of companies report budget results varied from actual +/- 5% or greater
Macroeconomic changes impact public, private, or venture backed companies in many different ways. With access to credit diminished, companies may be looking to raise more equity. Early stage companies, however, often fear dilution, and want to keep a larger percentage of the future pie. They need to have their financial planning in good order to access either equity or debt financing.
CPM tools allow businesses to identify implications of external variables to their businesses quickly and on an ongoing basis - without IT programming involvement and long wait times.
At the early stages of a company's life, the finance function can work with spreadsheets as a single user tool - this breaks down as the company moves to the next levels of maturity. As companies grow, they find they need to seek solutions that can be easily accessible by multiple analysts and executives throughout the company. This pain is keenly felt as entrepreneurial ventures gain business complexity. The most frequently cited pains include:
- Static solutions
- The time to put cohesive financial models together
- The ability to make real-time changes to reflect the current business climate
- The ability to detect errors and
- The lack of drill-down
The combination of these pain points makes having the gold standard "one version of truth" very challenging. CFOs and Financial Planning and Analysis managers know this all too well.
The right solution can greatly reduce the planning timeline, enable on-going forecasting, and facilitate rapid, distributed reporting and variance analysis. Dashboards, scorecards and even visualized sensitivity analysis are part of reporting available to executives and managers, without having to rely on Finance or IT. This allows annual planning and budgeting in less than half the time, forecasting appropriate to cycle times, and reporting a couple of days after the period close. Financial executives / controllers can now play a more strategic role. Board meeting preparation is faster and a higher quality plan resulting from better visibility is presented.
Rapid growth and merging/acquiring takes away time from investigating and implementing a new solution so the cycle of the painful planning process often continues. Web based solutions, however, are available that are easy to implement, do not require IT support, and enable widespread adoption and collaboration among key managers. This allows finance to quickly adapt to change. Once a year planning is dead. Businesses can adapt to and learn from their changing environment. Frequent re-forecasting appropriate to level of change, rolling forecasts depending on situational volatility, and forecasts can be easily created as the basis for the next budget.
While Carpio focuses on businesses in the higher end of the SMB market, there exist software providers for all sized companies that offer software as a service that is simple and flexible, affordable, and offering rapid ROI. If business is slower due to the economy, now may be a good time to invest in better options that make planning, budgeting, forecasting, and reporting easier. This will allow an entrepreneurial, growing team to have more time to focus on strategic and other more important operational issues. And time, along with a little more sleep, is something all entrepreneurs consider a precious asset.