How do you connect Budgets and Forecasts with financial reports?

It is imperative to analyze any deviation that is relevant in a financial statement and to have clear what were the premises in the moment that forecast and budget was made. For instance, if there is a price increase that was not considered in budget, that should be one of the assumptions of the deviation versus actual statements. However, it is relevant to understand if this impact is just related to a one-time effect or is going to continue, in order to make adjustments in the following forecast. One example of this could be when a regular transportation have a price increase of 20% from a specific month and forward. This kind of analysis make easy to understand what was different from the beginning and which effects can be controlled.

Budgets provide a structured framework for allocating resources and setting performance targets. By linking budgets to financial reports, an organization gains a tangible measure of its actual performance against planned targets. Forecasts take into account changing market conditions, economic trends, and other external factors that may impact a company's financial performance. Connecting forecasts to financial reports provides a mechanism for scenario analysis and risk assessment. The key to successful integration lies in the seamless flow of information between these components. Modern financial systems and software play a crucial role in this process, providing the tools to aggregate, analyze, and present data in a meaningful way.

Budget sets the expectation from the management with emphasis on goals be it Financial or operational execution. Sets up the focus on which market the Financials will head to. It is more of a long term goals Forecasting are set based on trend and what had transpired gearing to what is achievable in the near future but setting expectation on what can probably be achieved if execution is done better

Budgets are usually set upon a growth of previous years performance, taking into account company new strategies, market conditions, constraints to achieve that growth. If you find you cannot achieve the growth required, you must be quick enough to pull some of the levers of the business to still achieve your goal. Forecasts on a monthly basis, based on current activities, new contracts, costs, etc, shows you how far/close you are to achieving your goal. Forecasting will assist you to see the different possibilities of reaching that end goal and to pivot quick enough! My forecast is prepared on 1 doc, showing actual, budget and the remainder months forecasts, so I can see the whether end goal will be met and if not met, what the causes are!

Financial modeling projections are often based on your past performance. So, you’ll need to gather the relevant data before you make predictions. Examples of historical data you may use in forecasts are: Revenue Investments Sales volume Fixed expenses Variable expenses Sales conversion rates Average purchase value Lifetime value of a customer You can find most of this information in financial reporting documents like balance sheets or income statements from previous years

The very efficient way to connect a company's budget and forecast with her financial reports, is to leverage on technology. Most big companies use ERP software, e.g. SAP S4/HANNA. It has the capability to support this connection.

Title: Harmonizing Financial Data for Seamless Insights In the junk removal industry, I faced the challenge of connecting budgets, forecasts, and financial reports effectively. The second crucial step was implementing a common framework for data organization and presentation. This meant adopting consistent accounting standards, categories, formats, and definitions across all financial documents. We utilized the same chart of accounts, income statement, balance sheet, and cash flow statement for budgets, forecasts, and reports. This harmonization streamlined data analysis, enabling us to identify variances and adjust plans with ease, ultimately enhancing financial decision-making.

For the most cohesive framework all reporting should balance back to your general ledger setup, with department and more detailed budgets and forecasts being isolated for individual teams but still balancing together.

Some organizations keep two separate units for managing actuals and the forecasts/budgets. In such cases, it is key that these two teams are always aligned with 1. their understanding of the system and reports framework and any updates to them 2. treatment of unusual transactions originating from either of the two teams - whether actual or an upcoming transaction needing consideration in the forecast Even where a single team manages both Accounting and FP&A, it is critical that the team maintains consistency as much as possible between the treatment of actuals and projections. The Finance team will get the full complement of a “common framework” when it is backed by a “common implementation approach” by the team(s).

budgets and forecasts serve as the foundation for financial planning, while financial reports provide a means to track and communicate actual financial performance. Integrating these processes ensures that an organisation can effectively manage its finances, make informed decisions, and adapt to changing economic conditions.

Title: Sustaining Financial Alignment through Regular Updates In my experience within the junk removal industry, the third crucial step in connecting budgets, forecasts, and financial reports was consistent updates. These financial tools are not static; they require ongoing adjustments to mirror the evolving business landscape. Regular reviews, ideally monthly, or more frequently during significant changes in the market, operations, or goals, were vital. Moreover, quarterly comparisons of budgets and forecasts with financial reports ensured accurate tracking, gap identification, error spotting, and timely corrections. This dynamic approach enabled us to maintain financial alignment and adapt swiftly to business realities.

Example: One thing I found in one small industry was that they were not updating their financial reports so, they bought extra stock articles and commodities and they went out of budget. They had the stock available but noting to give salary to their employees.

Budgets need to be static. Forecasts do not. During the year the budget needs to stay true to the plan that was conceived. However, indicated final forecasts should be updated monthly so that opportunities to re-utilization of underruns and management reserves can be re-deployed for the improving the business or enhancing shareholder value.

Title: Transparent Communication: Bridging Financial Insights In the junk removal industry, the fourth step to connecting budgets, forecasts, and financial reports was clear stakeholder communication. We shared the purpose, assumptions, and results of these financial tools with employees, investors, lenders, customers, suppliers, and regulators. Highlighting potential risks, opportunities, and challenges that might affect financial performance, we built trust, transparency, and accountability, fostering better decision-making.

The US Government, as a Federal contractor, requires updates and variance analysis on most large contracts, new proposals impacts, and rates. The same is true of management. If things are really going bad, you should also share the situation with employees and unions and the Board of Directors. The SEC requires certain communications with investors. I'm not as sure about communication with suppliers. I do believe the use of target costing methods is appropriate when preparing proposals for customers. However, once the contract has been awarded they are tough to modify or change.

The budget and forecasting generate input for the main management indicators and measurement of companies' health. Therefore, complementing the reports with this information reinforces or assists in the decisions made.

Title: Evolving Financial Strategies Through Feedback In my experience within the junk removal industry, the fifth vital step in connecting budgets, forecasts, and financial reports was learning from feedback. Valuable insights could stem from internal analysis, external audits, customer surveys, or industry benchmarks. Feedback aided in assessing the accuracy, reliability, and utility of budgets and forecasts, while pinpointing avenues for enhancement and innovation. We harnessed this feedback to fine-tune our methodologies, assumptions, and objectives, ensuring that our budgets and forecasts remained dynamic and in line with evolving business dynamics.

In my point of view always check the historical data and market trends and 10% buffer Expenditure amount will be available (to mitigate the risk)

Depending on the required level of information, the organizational design and size, financial reporting is generated from the financial management system (i.e Agresso, Dynamics NAV, Quick books etc) in connection with the forecast & budget in the system for specific period with detailed analysis on the performance. Excel report is the most common output from the system. In order simplify the report, Power BI is used for report visualization which can provide various analytical dashboards which can be customized as per the information needed. Finally, up-to-date data warehouse that is synchronized with the financial management system can also provide financial report against the forecast & budgets which can be customized as per need.

One of the best ways to connect your budget and forecast with your financial reports is using technology. While there are many programs that offer the use of technology, it's a great idea to work with technology that is accounting based software. The system I utilize offers a budget integration that works with my financial system. Some of the key areas that I suggest when attempting to align both include: Ensuring your relevant financial data sources integrate with your software. Automatic data entry feed that connects with your accounting software. Real-time updates so your financial decisions are based on your current financial scenarios. Analyze your financials vs budget monthly to determine what can be done to improve.

The best option to manage and load your financial information and the forecast/budget of a period is a data warehouse where you can manage and structure them in any way you want. This is a simple and complete solution that enables you to compare different periods, analyse deviations and load different scenarios in the same format.

In this era, there are plethora of technological tools that can integrate financial performance with budget and forecasts and can be used by management to track company's performance w.r.t to budget and forecasts. The most common tool is Excel but I have worked on QlikView and IBM COGNOS Analytics platform. Management dashboards are available on the fly with complete analytics on financial performance against budget and forecasts, trend analysis (previous years comparison vis-a-vis current year performance). The advantage of using software tools is not limited to financial performance comparison but that also act as a data warehouse which can be used for future Budgeting and forecasting process.

The larger the organization the more imperative it is to use technology to keep track of things. Often, the technology can ensure consistency and foster best practices in the building and forecasting of costs and revenues. Whatever technology selected should be compatible with the system you are using to record actual costs, revenues, and cash flows.

As a finance professional, one of the best ways to connect the budget and forecast to financial reports is by utilizing a robust financial reporting system that integrates the budget and forecast data. This integration allows for seamless tracking and comparison of actual results against the budget and forecast, providing valuable insights for financial analysis and decision-making. By having a centralized system that consolidates all financial information, it becomes easier to generate accurate and up-to-date reports that reflect the current financial performance of the organization. This helps in identifying any discrepancies, analyzing trends, and making informed adjustments to the budget and forecast as needed.

Budgets and forecasts rely on financial data as their foundation. To optimize the processes of budgeting, forecasting, analysis, and reporting, it is essential to establish connectivity between planning systems and financial ERP. Furthermore, various budgeting metrics incorporate both financial and non-financial data, such as cost per headcount or unit. Therefore, integration between planning systems and non-financial systems is also necessary to ensure the smooth flow of data, enabling the seamless incorporation of information like headcount or unit production/sales into the planning process.

I normally do a variance analysis between the actuals and budget. Then bridging the actual amount with the forecast to be able to identify which area needs to improve to hit the target.

Align budgets and forecasts with financial reports through a structured framework. Develop budgets based on historical data and stakeholder input, incorporating assumptions and scenarios. Utilize advanced forecasting techniques, automate processes, and implement standardized reporting templates for consistency. Monitor performance, conduct variance analysis, and communicate results to stakeholders. Foster a culture of continuous improvement, invest in training, ensure compliance, and align financial plans with strategic goals. This integrated approach establishes a seamless connection, enhancing financial transparency and accuracy in reporting.