Budget elaboration for 2021 accounting exercise will be difficult for all companies due to the unprecedented level of uncertainty associated with the Covid-19 pandemic.
The Covid-19 pandemic occurred at a time when most companies were just beginning to execute their 2020 budgets. Since then, companies have not stopped adapting, reviewing their landings and budgets in constant discussion with business lines and business units. A budget elaboration of 2021 will necessarily be under the influence and the consequences related to Covid-19.
Budgeting has become a continuous reactive process, putting a strain on companies’ administrative and financial departments. The preparation of the budget for fiscal year 2021 must take stock of the impact (still uncertain) of the COVID-19 crisis on the company; assess the budgetary space needed to continue priority spending related to the company’s recovery and growth; and evaluate the company’s financing needs.
A reminder of the issues related to budget development for mid-sized companies
The budget elaboration serves several purposes.
- The implementation of the company’s strategy through operational objectives
- The management of the performance of the operational staff and the achievement of objectives
- The management of the performance of the operational staff and the achievement of the objectives,
- The management of the company’s financial performance.
To be representative, the budget elaboration must be aligned with business objectives. To achieve this, the budget preparation process must allow the company to easily model its budget rules according to its organization and to make its forecasts reliable in a collaborative working environment with business operational staff.
Budget elaboration issues: The budget objectives must be associated with precise indicators such as sales margin, operating income, number of FTEs, cash flow and return on capital employed…
It is imperative to be able to identify the various factors that can influence the budget, in particular the market context in which the company operates, exchange rates, the regulatory or social context and issues specific to the company.
The budget process is iterative and requires the establishment of a dialogue between entities and management that materializes through what is often referred to as the budget shuttle. Several “Top-Down” and “Bottom-Up” flows and iterations will dot the budget process.
The problems of companies in terms of analysis, financial forecasting and budgeting?
Today, the CFOs are facing increasing complexity and are asking for answers to a number of different questions.
The need for a more precise, regular and rapid growth analysis requires greater reactivity and flexibility.
The need for reliable data, framed and unique between all information systems becomes paramount for CFOs who have more and more data to process. They also need a tool that is powerful enough to enable them to save and secure their different versions of simulations. The latter must be collaborative and able to adapt to the company’s organization and to various changes.
It must be able to automate and simplify the processes of obtaining KPIs and analyses, updating and updating hypotheses, or creating and updating reports to increase productivity. Indeed, these processes can be tedious, not agile and not fast.
In what way did the Covid-19 accentuate the situation?
The health crisis has highlighted several key points:
- Resimulate very quickly and iteratively the Initial Budget and the projected cash flow.
This exercise had to be carried out with reactivity, speed, agility, iteratively, according to several scenarios, with potentially monthly updates.
It was necessary to make more detailed analyses on certain budget items and to review the vision and strategy.
- Adapting to massive teleworking by giving remote access to data and tools. In order to carry out their mission of updating the budget and cash flow forecasts, the finance department teams have had to have remote access to all the updated data and to tools enabling them to simulate budgets, strategic plans and cash flow forecasts. Of course, all this in a collaborative and centralized mode.
How a CPM solution can help you?
A Corporate Performance Management solution will provide all the necessary tools for effective, real-time financial performance management. Within a single platform, you will benefit from accurate performance management: Budgeting, Forecasting & Rolling Forecasting, Management Reporting, Multi-standard Statutory Consolidation, Financial Reporting and Reconciliation of intra-group operations. You automate tedious processes, make information more reliable, increase team productivity and improve decision-making processes.