Integrate Balance Sheet Budgeting

Potential car buyers may be attracted by the buffed exterior and vacuumed interior of your vehicle, but the savvy ones will kick the tires and look under the hood. Likewise, when potential investors or buyers come knocking, consider your Income (P&L) Statement the appearance of the car. Clearly important but not the whole picture.

Looking at the Cash Flow Statement is like kicking the tires. Will the tires hold up? Is your cash flow strong enough to support ongoing operations and future growth?

Even more important is looking under the hood, or at the Balance Sheet. Like a car engine to the car buyer, no other financial report gives as immediate and accurate a picture of your company’s overall health. Hence the Balance Sheet’s other name, the “Statement of Financial Position”.

The typical financial planning cycle

Despite the importance of all three financial reports, the Income Statement – the shiny exterior – gets 90% of the attention during budgeting time, due to busy schedules and inadequate tools. The Income Statement doesn’t show Accounts Receivable or Accounts Payable, so it can’t possibly tell the whole story.

In the typical scenario, after much number-crunching, the Income Statement is ready for prime-time. With only a day or so left in your budgeting cycle, the Balance Sheet is built at a 50,000-foot level – just the basics with little to no granularity of data. Precision suffers. That lack of precision flows over to the Cash Flow Statement, built of course from the Balance Sheet. The two subpar statements are manually synchronized with the more vetted Income Statement and your financial plan achieves sign-off.

Technology hurdles

Lack of time is not the only obstacle impeding accurate and thorough Balance Sheets and Cash Flow Statements. Most financial reports today are created in spreadsheets, with no easy way to capture the ebb and flow of cash, especially if using the accrual method. As a result, many companies use averages or estimates for Accounts Receivable and Payable, or ignore the Balance Sheet altogether.

Where Balance Sheets stand alone

Capital expenditures are one of many business variables that must be taken into account when conducting strategic planning. Usually, the cost of new equipment, for example, won’t appear on your Income Statement until it begins to depreciate. Until that time, the Balance Sheet is the only place you can see precisely how much capital you need when.

Many companies use the Income Statement alone for this type of analysis, adding up the amount of money they’ll lose until break even and assuming that is the amount of necessary capital. They couldn’t be more wrong. Without the Balance Sheet, they are merely guessing.

Out-of-the-box solution

Detailed, plausible and defensible financial reports are not a pipedream. The creators of Budget Maestro & Planning Maestro have been in your shoes and knew there had to be a better way, so they designed software that:

  • Works right out of the box, implementing in hours and requiring little to no IT involvement
  • Generates precise, integrated, synchronized, real-time Cash Flow Statements and Balance Sheets, as well as Income Statements and other financial reports.
  • Builds the Balance Sheet and Cash Flow Statement off the P&L transactions so you don’t have to add data a second or third time.
  • Is an affordable investment in improving your financial management and ability to make strategic business decisions.

To learn more about Budget Maestro, join us for a free webinar on Thursday, March 18, 2010, 2:00pm Eastern Time. Register here.

For more information, contact Blytheco - send us an email, or give us a call at 800.455.1368, extension 2500.

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