Budgeting and Forecasting featuring Jitasa

Transcript

1. Budgeting and Forecasting X
2. Presenter Christian Spearow Christian has been with Jitasa since the summer of 2010. It was his first ‘real job’ and he’s never left. He currently works as the Vice President of Sales. Previously, Christian was the General Manager of Bookkeeping and Accounting Services, supervising a team of accountants that deliver services to our 1,000+ non-profit clients.
3. Who is Jitasa?
4. Agend a
5. What is a budget and a forecast? Separate Functions Budget Forecast Separate Purposes What we want to happen ▪ Inspiring and motivating ▪ Detailed ▪ Typically performed on annual intervals ▪ Often used as a motivational and coordination tool What we think to happen ▪ Unbiased ▪ Expected outcome vs. targets or prior years ▪ Limited details to allow for rapid iteration and decision making ▪ Typically performed on monthly or quarterly intervals
6. Budgeting and forecasting is similar to navigating a ship in the ocean • The path to the destination is mapped from the start • The path of the ship is continuously monitored • There can be many unforeseen obstacles (such as weather) • Corrective action is taken when the ship steers off course
7. Budgeting
8. Do’s ▪ Involve key stakeholders in the process ▪ Use reasonable assumptions ▪ Communicate the budget to all ▪ Understand your critical drivers and KPI’s ▪ Stay agile (understand sensitivities, scenario model, and be flexible with significant changes) Don’ts ▪ Be unrealistic and set yourselves up for failure (stretch is ok) ▪ Overestimate demand and underestimate labor ▪ Budget in silos ▪ Forget about the possibility of economic changes (inflation, interest rates, etc) ▪ Fixate on immaterial items that will not influence performance Budgeting Do’s and Don’ts
9. Incrementa l Top Down Bottom Up (or Zero based) Assumes that all budgets “start from scratch” Budgeting methodologies So which one is best? It depends! Taking prior year numbers and adding or subtracting to reach the current year budget Pros: Simple and easy to understand Cons: Likely to perpetuate inefficiencies Setting high level goals and pushing down to different departments Pros: Provides a clear goal for each department to work towards Cons: May miss details and not be realistic Pros: Evaluates all budgetary items for their value proposition Cons: Time intensive
10. Example Typically, new initiatives, common size, and ability to accurately predict outcomes will determine the type of budgeting method used
11. Steps in the budgeting process Define the budget cycle Start with the end in mind Ensure you have up to date historical data Analyze your historical information for key drivers Align your resources Set your revenue target Iterate to achieve your goal Approve and implement
12. Define the budget cycle ▪ Period length ▪ Annual (most typical) ▪ Semi-Annual ▪ Quarterly ▪ Timeline to build and implement ▪ Approvals Ensure all stakeholders know the timeline! Budget Cycle Review Implementaion Negotiation & approval Planning
13. Start with the end in mind Agree upon a collective goal! What are your dreams and aspirations? Expand your current programs? Fund a new program? Build a surplus for sustainability?
14. Ensure accurate historical information Your assumptions and drivers are only as good as the data you have!
15. Analyze historical information This information is used to identify the key drivers and assumptions to be made in the budget What are we looking for? ▪ Understand common size ▪ Focus on materiality ▪ Relationships between financial items ▪ Revenue and expense impacts of new initiatives
16. Align your resources ▪ Determine costs to reach organizational goals ▪ Focus on common size and new initiatives ▪ Document assumptions ▪ Understand recurring vs. one time spend ▪ Identify Discretionary vs. non-discretionary spending ▪ “Nice to have” vs. “Must have”
17. Example Salary Detail Large Common Size Discretionary vs. Non-Discretionary Discretionary vs. Non-Discretionary
18. Set your revenue target ▪ Determine how your expenses will be funded ▪ Focus on common size and new initiatives ▪ Typically, don’t assume that every revenue source will be 100% ▪ “Discount” you’re your large revenue sources based on likelihood of securing funding
19. Example This will help identify to communicate how “conservative” or “aggressive” your budget is
20. Iterate to achieve (or re-align) your goal Most importantly – Identify risky and aggressive assumptions in the plan! ▪ At this stage, “reality” often sets in…it’s OK! ▪ Identify funding opportunities to close the gap ▪ Perhaps you have been “conservative” on your revenue estimates ▪ Identify areas of spending that may not be necessary ▪ Remember the identification of discretionary vs. non-discretionary items ▪ Use “if-then” sequencing
21. Approve and implement ▪ Present to committees and receive board approval ▪ Once budget is approved: ▪ Enter into accounting system ▪ Re-communicate the approved budget to staff ▪ Do not change budget to make budget match the actuals
22. Forecasting
23. Ready for forecasting We have mapped our destination! Now we need to monitor our course and provide corrective action as needed ▪ Determine what we think will happen ▪ Analyze and compare to our budget ▪ Make corrective decisions as needed
24. The Forecasting Cycle Frequency : Need to determine frequency of forecasts Length: Need to determine length of forecasts Actuals Forecast uncertainty uncertainty uncertainty Year 202X 1 Q 2Q3Q4Q Year 202X 1Q 2Q3Q4Q uncertainty 2Q 3Q 4Q 1Q
25. Focus On Continuous Improvement to Achieve Goals Year 202X 1 Q 2Q 3Q 4Q Year 202X 1Q 2Q 3Q 4Q uncertainty 2Q 3Q 4Q 1Q Where are we now? Forecasting Trend analysis Align resources Prioritize value adding initiatives Eliminate non-value added items Demand Capacity New initiatives Risks [Re] Assess Act Identify Repeat this cycle on the determined frequency to ensure you achieve your organizational goals
26. Use your forecast for decision making Forecast vs. Budget
27. Cautio n Focus on value creation Use your budgets and forecasts wisely Eliminate Focu s Pre-set allocation of resources encourages hoarding Is it in the budget? Be flexible as you allocate resources throughout the year Are there better uses of these funds?
28. Q&A christian.spearow@jitasagroup.com