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Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "4 Techniques For Budget Forecasting" »


In business, knowledge is power. The keys to a successful enterprise rest on the ability to stay agile, to make the best decisions in a timely manner.

Being able to forecast overall income and expense, net profit or loss, overhead costs or the performance of individual functions is a crucial of strategic management. But the ability to forecast is determined by how your budget is set up. You can forecast for an entire year or use real-time data to project results. By creating different budgets, or different reports within a master budget, you can effectively forecast the performance of your business.

1. Create A Master Budget. By far the easiest technique, a master budget is an ideal way to forecast the performance of a business. Based on recent performance, this static document projects a snapshot of how you envision your business will perform over the course of the coming fiscal year.

Performance is projected based upon income and expense data from one or more previous years as well as trends and market knowledge. This forecast is then taken to managers who discuss the anticipated performance of products or services, changes in the marketplace and other factors that might cause changes in your company’s results compared with the previous year. Forecast your final budget using your recent performance numbers and agreed-upon projections.

2. Make real-time projections. You can create an additional column of information in your master budget that projects your annual performance using data as it occurs. This technique can improve the accuracy of your forecasts. For example, by using your first three months’ sales figures, you might be able to project more accurately your year-end totals – more so than a static master budget does.
As you enter data into your master budget, divide the "Total" column results by the number of months that have passed to get your average monthly income and expenses. Multiply the numbers in this column by 12 to project where you will end the year if these numbers continue at their current levels.

3. Make Overhead Projections. Knowing precise per-unit production costs is critical to forecasting profit. Overhead costs are factored in as the costs of selling these units.

If you have $1 million worth of direct expenses to make a product, and it costs $2 million to run your company, your actual cost to sell each unit will be $3 each. Keeping track of overhead will help you project your margins and profits if you adjust your production numbers.

Use your master budget to identify all overhead costs, such as rent, insurance, utilities, phones, office staff and marketing to determine the company’s overhead costs. Divide this total by the number of units you produce to determine your overhead costs per unit.

4. Create multiple scenarios. You can use your master budget to create scenarios to project how different levels of sales and different prices will affect your bottom line.

Create three scenarios: In addition to the initial annual projections you and your team make based on your recent history and anticipated market conditions, create two more budgets that show a lower amount of sales and a higher amount of sales. This will let you project the impact on your business to see where you can make adjustments. Create two more budgets that forecast your performance at price points higher and lower than your current prices. Adjust your sales numbers to reflect the impact your two prices changes will likely have. This will help you project sales, profits and margin changes. If your sales rise in response to lower prices, your profit per unit will increase as your overhead cost per unit goes down.

Software and applications can greatly improve the speed and efficiency of budget forecasting. TGO Consulting offers solutions tailored to meet your unique business needs. Contact us today and learn how you can optimize your business.

Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "Annual Budgets vs. Rolling Forecasts: Which Is Right For Your Business?" »


In any business, there’s always some tension between the way something’s always been done, and any innovative, new ideas that could precipitate a sea of change. And in the realm of finance, this is especially true. Why tinker with an aspect of business so vital, if everything seems to be hunky-dory?  Finance provides the basis for any organization’s survival, so concerns about any changes in methodology are understandable.

However, as today’s culture of ‘disruptive’ thinking begins to permeate every corner of business, approaches to processes such as budgeting and forecasting are also evolving. Being agile and adaptable is now the name of the game, and if a company’s finances can’t keep up with ever-changing scenarios, the outlook is grim.

That,s why many businesses are rethinking their use of static annual budgets in favor of the more flexible rolling forecast. Which is right for your organization? Let’s explore the differences between the two.

Resources

Most everyone is familiar with the intensive work associated with putting together an annual budget each year. Well in advance of the new financial period, man hour upon man hour is put into its preparation – research, data evaluation and input, review. Business resources needed elsewhere are tied up in this one process for what seems like ages, as everything must be completed and set in stone before the new fiscal year begins.

With a rolling forecast, on the other hand, this process is ongoing throughout the entire year. Rather than being tackled in one fell swoop, and then left alone for the rest of the year, rolling forecasts see tweaks and changes made each month or quarter, based on the most current trends.  No huge investment of resources is necessary all at one time – instead, the workload is spread out over the entire 12 months.

Flexibility

With an annual budget, research into past and current trends determines the plan for the entire upcoming fiscal year. Many times, however, this data is already out of date by only a few months into the new year. But because the annual budget is static, changes are not made until the following year.

Rolling forecasting allows businesses to not only stay up with current trends as they update their data each month, but also to quickly and easily adapt to changing market conditions such as new competitors, cost fluctuations, or even changes in the economy.

Outlook

Annual budgets make a forecast for the next 12 months, and count down to zero as they go. Anyone wishing to look beyond the remaining months in the budget must simply wait until the next year’s budget is put together.

When a rolling forecast is put in place, however, there is always a 12-month forecast available – as each month or quarter passes and falls off the plan, another month or quarter is simply added to the end. In this way, there is always up-to-date, long-term data accessible when important decisions need to be made. 

Rolling forecasts make your organization’s financial plan into a living, breathing organism that can pivot easily as needed and adapt to changing conditions whenever necessary.  And at TGO Consulting, we offer solutions that can promote a shift within your business from once a year budgeting to rolling forecasts, in order to provide more accurate and up-to-date business decision making information for your company.

Our True Sky software has been hailed by Brian Armstrong, former CFO at Microsoft Canada, as an elegant solution to this common business issue: “The elegance of the True Sky product is that it harnesses the power of Microsoft Excel and SQL Server to deliver a solid and flexible solution for planning, forecasting and budgeting.”

To learn more about True Sky and all our budgeting and forecasting solutions, contact TGO Consulting today!

Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "6 Ways To Improve Sales Forecasting" »


While sales forecasting is a solid element of business best practices, the truth often is that they are inexact. So how can you maintain critical management strategy and at the same time improve you forecasting?

Know Where To Look
The key to improving sales forecasting is to know in what direction your forecasts are wrong. Understanding these weak spots allows you to create a picture of how your business is performing.

But there is more to forecasting than mere accuracy. The utility of forecasts can be assessed in other ways – look at them from the standpoint of how well they break down into meaningful assumptions than can examine at a later time.

Fortunately, there are ways to avoid turning your forecasting into a mixture of chance and luck. Here are six ways you can test your sales forecasts.

1. There’s no one set of numbers. A common misconception many businesses have about forecasting is that there is one set of numbers that reflects the reality of that business. The truth is that a business needs multiple forecasts in order to comprehend the needs of departments.

Product management will have different needs from a sales team, and these in turn will differ from what revenue requires. Senior management must then gather these forecasts together into a cohesive whole. Keeping this picture accurate is a matter of ensuring that forecasts have been vetted from all perspectives.

2.Be realistic. There’s no magic test that will ensure you can track all the details of every sale. Because conditions change, developing a flexible process that can be reevaluated, adapted, and managed is critical.

3.There’s more to forecasting than averages. One of the biggest mistakes in forecasting is looking at past sales figures and evolving an average based upon them. There are other important areas that need to be considered.

Because sales forecasts need to be updated on a regular basis, merely taking an average of past performance produces an imperfect picture to rest critical decisions on. Managers should understand the sales system, product delivery, and customer history to be able to assess the accuracy of forecasts.

4.Take time to monitor. For forecasts to be useful, they must be constantly and consistently monitored. Making time for managers periodically to look at, plan, and compare actual results strengthens the broader decision making process of your business.

5.Be consistent in modeling. There is no one-size-fits-all model for forecasting. There are a variety of ways of making predictions, but the key is to be consistent in using the same model – the format then becomes standardized and makes the review process easier each year.

6.Keep it simple. Forecasting needn’t be a complex process involving advanced math and projections. Easy to use software and applications are available to aid in making forecasts. These solutions provide an audit trail, a history of the forecast, and the ability to align the data with customer relations management.

TGO Consulting has the tools your business needs to stay agile and grow. We custom fit solutions to match your company’s unique needs and provide the support to ensure they function smoothly in every facet of your business activity. Contact us today and learn how TGO can make doing business better.

Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "Budgeting Basics: 3 Best Practices" »

The Burden Of Budgeting
It’s a foundation of business science: no company can hope to avoid the budgeting process and expect to thrive. And while few would claim that the process of creating a budget is one of undiluted joy, there is more to be gained from budgeting than merely planning expenditures.

Rather than enduring it as just one more task to get through, looking at budgeting in the context of strengthening your business is a good way to gain more from the process.

What Budgeting Brings
The budgeting process brings your entire organization together to look critically at the goals of your company, draft action plans to achieve them, and then describe these items in financial terms. This process allows you to look at the course of a year in advance, as well as providing the context for sharing this information with key stakeholders.

Being able to describe the ways that an enterprise is going to be sustained and grow is an important benefit accruing to the budgeting process.

Budgeting Strategy
Keeping your business goals clearly in focus, the first step is adopting a methodology for your budgeting process that meets your company’s needs. The key items to consider are:

  • How detailed is the process to be?
  • How often will the process be carried out?
  • Who should be involved in the process?

Budgeting Best Practices

1. Make Budgeting A Part Of Your Business Culture
In order to reap the fullest advantage of the budgeting process, you need to eliminate as much as possible a negative view of budgeting as just another chore. Company-wide commitment to the budgeting process is necessary for success.

Senior management should take the lead by setting realistic targets. Requiring department project managers to create their own action plans and linking performance reviews with their ability to manage their business and realize their goals sets the standard for the entire company.

2. Synchronize Operating and Strategic Plans
Senior management and finance work together to craft long-range strategic plans that are then aligned to major initiatives and goals. Budgeting is where concrete, detailed operating plans are spelled out. Because the strategic and operating (budget) plans have to be synchronized and related, it is critical than the operating plan not be drastically different from the strategic plan – ideally the operating plan should flow from it. Otherwise line managers will be unable to work toward the same goal optimization as envisioned by top management. In short, budget development is most effective when linked to overall corporate strategy.

3. Allocate Resources Strategically
When strategic goals are in place and an operating plan has been created to achieve them, resource allocation is the next priority. In any company, there is competition for resources. In almost any company the actual capital and operational expenses of each function or business unit will often be in excess of resources available. It is therefore absolutely critical to design procedures that will keep resource allocation focused on supporting key strategies.

Successful strategies include:

  • Coordinate the review of capital and operational budgets: this allows managers to see how changes in one budget affect the other.
  • Have a sophisticated approach to evaluating proposed budgets. The concrete form this can take varies by industry, but common ones take into consideration the company’s weighted average cost of capital. Other approaches asses the degree of risk of competing action plans, the costs of deferring action, and expected developments in interest rates.

Employing these measures and creating cross-functional teams to examine action plans can help your company achieve its business goals.

Management systems can improve the speed and efficiency of the budgeting process. TGO offers custom designed solutions than can greatly improve your company’s performance. Contact us today and learn what TGO can do for your business.

Posted by & filed under General.

Read more on "10 Essential tips For Implementing an ERP System: Part TWO" »10essentialtipsp1

Maximizing ROI in the midst of implementing a new ERP system can be challenging. Here are further ways you can ensure this process is smooth, swift, and successful.

6. Define Key Performance Indicators
From the beginning and throughout the implementation process, defining clear KPIs is necessary to guide and direct the project. Frame quantifiable metrics that:

  • Reflect the performance of your organization in achieving its goals and objectives
  • Reflect strategic value drivers rather than just measuring non-critical business activities and processes
  • Create accountability and track progress
  • Align to all business units, departments and individuals with clear targets and benchmarks
  • Support overall goals of the business while each reflecting their own performance
  • Can be measured and compared against companies in your industry. Trusted advisors with your niche industry expertise can help.

Establishing clear KPIs allows steering committee and implementation team members the ability to access quickly the status of implementation as well as a measurable means of indentifying trouble areas.

 7. Track Quantifiable Benefits
There are many benefits of ERP that can be difficult to quantify. Organizations should track qualitative improvements resulting as a direct result from their ERP system, such as:

  • Error-free processes
  • Better decision making
  • Reduced inventory levels
  • Improved customer, partner and supplier satisfaction

8.Communicate Expectations
The first step to fashion a communication of expectations is the creation of clear KPIs. Once KPIs have been defined, identify leaders and champions to communicate expectations.

The communication process can be difficult to achieve. Maintaining the clarity of KPIs is absolutely critical to ensuring uniform response to training and end user performance. Accordingly, organizations must be willing to adjust their assumptions when new information comes to light and to communicate why a metric or benchmark changed. It is imperative that the decision making process and lines of communication to end users are kept open.

9. Measure ROI Implementation
To optimize benefits from an ERP system, organizations need to ensure before they implement that they have an effective set of ROI measurements. Determining ROI pre-and post-rollout is key to achieving success.

Benefits, however, cannot be expected right away. Significant factors of the implementation process can obscure ROI. In the first weeks of using a new system, users are still learning and making mistakes. In most instances it takes up to two months to start seeing results in ROI and business benefits.

10. Project Management
An experienced Project Manager using a proven methodology with a clear understanding of objectives, project timelines and deliverables can have a tremendous impact on the outcome of the project. Project Management is critical to the success of an ERP implementation.

Ensure that your implementation team is made up of people knowledgeable about every area of your business.

When implementation of a new ERP system is managed efficiently by people knowledgeable about your business, KPIs can be tracked regularly providing timely insight on progress, ensuring a faster return on investment.

Visit www.TGO.ca to learn more about ERP systems and how to select the right one for your business.

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