We are back in Budgeting season once again and probably apt that all black arts are performed at Halloween!

At Miagen we have built over 100 Budgets at this stage and encounter similar problems again and again, here are a few things that may assist you in this cycle.

Revenue

This is the area everyone is looking at, it may be collected from Sales managers or you may be doing it for them. In any case you need some components that can be the starting point for a flexible model. Plan for Top Ten Customer/Products individually plus the others combined; use Status quo and key changes etc. Use the resources that are available, ideally get everybody responsible involved, see it as a starting point for a longer term aim if it currently doesn’t happen at all. Create a bigger loop and keep them in the loop.

Operating Costs

Go through the P&L line by line and determine what activity drives the cost: is it practical to use Headcount and an average rate, or are there other drivers? Try to keep to a manageable number of drivers;  5 or 6. Then identify the costs that are controllable and assign the drivers of those to the managers who have responsibility for them. Get their input in drivers not the resultings costs. For uncontrollable costs find something that you can tie them to in correlation terms e.g. last year, an external known factor etc.

Personnel

You probably have something here you used last year that works but is a bit of a pain, there’s no great option here within Excel. We recommend you use a planning tool but if that’s not an option only go to as much detail as necessary, it can become more or a registrar than a Budget once you start adding all the extra columns. Ideally it’s date driven so you can use it for scenarios later.

Allocations

Ideally your managers should only be measured on their controllable costs; however often allocated costs are included in their targets. These can be a real battle for accountants as you must justify the costs to your budget holders. You should keep your allocations simple – don’t use too many drivers; don’t have multi-level allocations (so if revenue units absorbs costs from their Regional HQ and their Central HQ, don’t have 2 allocations for each unit - allocate the central costs to the region HQ  first, and then you can do just one allocation from the region HQ to the unit)

Capital

Again like Personnel it can be painful in Excel but see what you can get from your GL in terms of the existing Depreciation schedule and then some key additions and again think of the scenarios you will have to provide afterwards.
 
Cashflow and Balance Sheet

A key deliverable in most cases and the one that Scenarios are often necessary for in this climate. Here we need to deliver a few logical things: the Actual Balance Sheet needs to tie into the Budget Balance Sheet and you will have at least one more set of accounts by the time this is agreed. It needs to be moved forward. Cash should be the balancing figure. The key movers like Working Capital need to be Assumption based e.g. Debtor Days, Creditor days etc and based on the actuals. Loan schedules if relevant to support the main changes in debt. There are a few key items so don’t waste time on every line, spend time on the logic to integrate it to the rest of the Budget.

Look beyond your organisation

Bring external information on your industry and influencing factors into your plan and show where you rank in terms of KPIs etc. These will become future performance drivers to deliver strategy in some areas and determine it in others.

Finally

Forecasting and Planning is now an integral part of most finance departments, the annual Budget may be necessary but rapidly changing environments are best handled by agile plans. Build your budget this year with a view to using it through the year to help you forecast.
 
MIAGEN is a planning & forecasting consultancy based in Dublin that delivers structured models for Planning to organisations throughout Europe and the Middle East using cloud technology. They are running a complimentary workshop on Adaptive Planning at the Westbury in Dublin on October 13th. Click here for details.