5.07 – Using The Right Budgeting Tools For You
Creating an accurate projection model requires a solid foundation of historical data. Here are three essential tools to help streamline the process:
CART: Complete, Accurate, Reliable, and Timely
The CART acronym stands for Complete, Accurate, Reliable, and Timely. These principles apply to all the data and information needed to prepare a projection model, regardless of the source or format.
Complete
Financial statements should include a balance sheet, an income statement, and a cash flow statement to provide a comprehensive view of the company’s financial health. For instance, if expanding a manufacturing facility, you’ll need information about land and facility costs, utilities, environmental issues, workforce availability, and training costs. While overkill isn’t the goal, having access to all relevant information is crucial.
Accurate
Accurate data is fundamental for preparing the initial budget. This includes details such as product pricing, employee wages, and office rent. Ensure your accounting and financial systems generate precise data.
Reliable
While closely linked to accuracy, reliability refers to the dependability of the information. For example, you might find that the average wage for a paralegal in San Diego is $24 per hour, but if you need a specialist paralegal, they might demand $37 per hour.
Timely
Data must be timely. It’s crucial to provide management with real-time information to make informed business decisions and adjust forecasts as necessary. Outdated information can hinder effective planning.
SWOT: Strengths, Weaknesses, Opportunities, and Threats
A SWOT analysis is a valuable tool for keeping businesses focused on key issues. It involves evaluating your company’s strengths, weaknesses, opportunities, and threats.
A SWOT analysis matrix typically includes:
- Strengths: Positive internal attributes that support achieving business objectives.
- Weaknesses: Internal attributes that hinder business performance.
- Opportunities: External factors that the company can leverage for growth.
- Threats: External factors that could pose risks to the company.
Understanding the big picture and key economic drivers helps in preparing effective business plans, strategies, and forecasts. It enables you to focus on significant factors rather than getting bogged down in minor details.
Flash Reports
Flash reports provide quick snapshots of critical operating and financial data to support ongoing business operations. They are produced more frequently than traditional financial statements and are used to deliver critical information promptly.
Key attributes of flash reports include:
Frequency
Flash reports are produced weekly or even daily, unlike monthly financial statements. This frequent reporting helps businesses stay on top of rapidly changing markets.
Critical Data
Flash reports capture essential operating and financial performance data, such as sales activities and volumes, which are crucial for business success.
Variety
They can include various types of data, such as retail store foot traffic and labor utilization rates, providing a comprehensive view of business performance.
Source Consistency
Flash reports derive their information from the same accounting and financial systems that produce other reports, ensuring consistency and reliability.
Internal Use
Flash reports are typically for internal management use and are rarely shared with external parties. They often contain detailed and confidential data.
Budgeting Integration
Flash reports are closely linked to the budgeting process. For example, a rolling 13-week cash flow projection helps manage short-term cash flow needs, providing weekly updates in a flash report format.
Flash reports should reaffirm the company’s performance rather than introducing new information. Consistent formatting and presentation allow quick interpretation of results, enabling timely and informed decision-making.
By utilizing these tools—CART, SWOT analysis, and flash reports—you can create a robust and dynamic budgeting process that adapts to changing business conditions and supports strategic planning.
