Why Lengthy Budgeting Processes Can Hold Small/Medium Businesses Back
FP&A Insider is proud to present a series of articles focuses specifically on the Small to Medium Businesses market: companies with 200 – 2000 employees.
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Because of growing internal and external complexity, it’s important for SMB's to understand their challenges and how to overcome them. One significant problem involves the amount of time it takes for businesses to complete their planning, budgeting and forecasting processes. Because doing so is time-consuming, such processes no longer effectively serve the business.
Large enterprises do not have this problem, because they typically have the resources to purchase high-end solutions such as SAP, Oracle Hyperion, NetSuite, Sage Intacct and others. However, most of the SMB's are still trying to find their way in this market.
To understand the reason for much of this frustration and why so little progress has been made, FP&A Insider and the Finch&Wilson research firm conducted a survey of 250 FP&A professionals of SMB's.
The study found that nearly three-quarters of the respondents admitted that they still rely heavily on spreadsheets in their FP&A operations. Using spreadsheets dramatically reduces the effectiveness of operations and prevents teams from running processes at a faster pace throughout the year. Consequently, relying on spreadsheets reduces the benefits that the budget, forecast and planning processes should yield.
Top Challenge Hindering Planning, Budgeting and Forecasting Effectiveness
Most executives are aware of this. In many organizations, business managers see little value in their budget, forecast and activities, even though improving budgeting and forecasting processes is a priority for chief
financial officers.
The frustrations that executives feel with planning, budgeting and forecasting can result in forgetting the purpose of such processes. Executives lose sight of the reasons why they plan, what a forecast is for and what they wish to achieve in their day-to-day performance management.
Most importantly, they lose sight of the metrics that they should be monitoring and managing. Many organizations undertake significant finance transformation activities, but the implementation of planning, budgeting and forecasting best practices still struggles to find traction alongside other projects.
That said, FP&A processes do not have to be a source of pain and dissatisfaction. Done well, they can and should be a competitive advantage.
The level of detail required from planning, budgeting and forecasting remains consistently high. Over half of organizations have a culture of financial detail, which drives excessive effort and a focus on outcomes rather than the plans to deliver them. The demand for detail is similar in organizations of all sizes. While the impact of a high level of detail is difficult to quantify in terms of corporate performance, it does create excess time in the budgeting cycle.
Organizations still take a long time to produce their budgets. Over 40% take two to three months to complete their budget while nearly a third of respondents take up to six months. Total effort is difficult to determine when contributions are spread across the organization, but clearly, it is a struggle to achieve rapid, efficient and effective processes.
Spreadsheets are still ubiquitous in organizations of all sizes. Over a third of survey respondents still use spreadsheets as their main budgeting and forecasting tool. Vendor planning tools such as IBM Cognos Analytics, Oracle Hyperion or SAP BPC are widely used. However, these tools are typically used to collect data rather than to develop budgets and plans.
Clearly, organizations are not taking advantage of all the capabilities available to them from their planning tools. Only a quarter of respondents use rolling forecasts, and most organizations forecast to the end of the financial year. Smaller organizations are more likely than larger ones to have implemented rolling forecasts.
Why Do Companies Remain With Spreadsheets?
Not surprisingly, collecting, aggregating and analyzing data via the ubiquitous spreadsheet still constrains most businesses. This slows the process of dynamic forecasting and planning and makes it prone to error.
39.1 % of the companies responded that the reason they haven’t moved away from spreadsheets to a best of breed solution is because of the long process that such a migration will entail.
29.9% stated that they wish to keep the current flexibility that spreadsheets deliver, and which other systems do not.
24.4% said that cost is a factor, and that they don’t believe that the ROI of such a system will be positive.
Success Stories
We were happy to speak with some SMBs that had great success switching from spreadsheets to new SaaS solutions. The most successful solution reported was DataRails, which automates spreadsheet-based FP&A processes and transforms them into a cloud-based SaaS solution within days.