For decades, the finance team’s professional lives were governed by a fifth season: Budgeting. In late-summer team members began meeting with General Managers and department heads as part of the business budgeting process to assess revenue and expenses over the past 12 months, and make predictions as to what will happen in the future. That effort, marked by lengthy working meetings and spreadsheet manipulations, was memorialized in “the budget.”
That budget was a stake in the sand, outdated the minute the first actuals rolled in. In response to that obsolescence, finance teams would huddle around the spreadsheets at the end of each quarter to update their forecasts.
2020: The Year that Changed “Budgeting Season”
Then came the pandemic and a hodgepodge of lockdowns worldwide, forcing restaurants, non-essential retail, manufacturing, gyms, schools, and countless other facilities to close. The closures had rippling effects throughout the economy. Over 100,000 companies went out of business, as did many iconic brands.
As a result of these closures, countless CPG companies and manufacturers experienced cancelation of orders. More dire was the loss of channels that many manufacturers relied on to get their products into the hands of their end customers. For some manufacturers, business came to a screeching halt as lockdowns idled their sectors until the pandemic was safely behind us. Widespread unemployment and uncertainty led consumers, businesses and local governments to retrench.
Never before had the business community experienced such a large-scale reversal of fortune. In a matter of weeks, every business of every size had to pivot. Spirits companies changed their manufacturing processes to produce hand sanitizers, fashion labels began manufacturing PPE and face masks, Kodak inked a $765 million deal with government to produce “starter materials” for a potential vaccine, and GM and Ford pivoted their operations to meet the demand for respirators.
They were the lucky brands. For most companies, however, simply surviving became a top-line goal. Finance teams had a new set of questions they needed to answer on a weekly basis, such as: Do we have enough cash flow to make payroll this month? Can we stay in business if these key customers go out of business? Industry pundits warned every manufacturer that without a direct-to-consumer (DTC) channel, they would likely cease to exist. But launching such channels requires a new website, pricing structures, pick-and-pack models, integrations and a lot of other expensive activities. Is it a risk or an opportunity?
Business Budgeting with Micro-Forecasts and LEs
The pandemic put the need to update forecasts on warp speed and “latest estimates” or LEs gained more attention than ever. Everyone, from the C-suite and Board to department heads and GMs wanted to know the LE on a continuous basis.
It was a challenging time for finance teams. To begin, they could no longer huddle around the CFO’s computer to collaborate on data. Second, while manually calculating a forecast is doable on a quarterly basis, it’s impossible to do on a weekly or daily basis. Expenses and revenue ripple through an organization in precise ways, and understanding how potential changes will affect an organization requires a lot of insight and time. Finally, accuracy was paramount, as an error in a projection could very well lead to the company going out of business.
For many companies, micro-forecasting became the key to survival. By predicting where each dollar of revenue would come, and assessing how each dollar was spent, micro-forecasts illuminated the path forward, and allowed executive teams to fine-tune the business. Survival hinged on an ability to identify the micro-opportunities that would push the company into the black, and avoid the micro-threats that would have the opposite impact on the P&L statement. The ‘traditional’ business budgeting process had changed.
The New Normal: The Toothpaste is Out of the Tube
Ask any finance team member, in any industry or market size, about the impact of the pandemic on their jobs and they will tell you they are living in a “new normal.” The C-Suite and the Board have grown accustomed to receiving LEs on demand, and they’ve experienced first-hand the benefit of spotting and acting on micro-opportunities as they arise. The traditional business budgeting process, the annual budget and quarterly forecasts fell victim to COVID-19.
The new normal has also rendered the familiar FP&A tools obsolete. Many platforms have rigid underlying models and require expensive consultants to modify them, hardly an ideal situation for assessing the implications of investing in a DTC channel, or assessing the impact offering steep discounts so that a major customer can stay in business. The new normal demands a greater degree of flexibility, without any degradation in accuracy.
Ease-of-use in FP&A platforms is now table stakes. In the pre-pandemic days, when budgets were created annually and forecasts were updated quarterly, cumbersome workflows were tolerable, as they were used intermittently. Today, with the CEO asking for LEs each week, streamlined workflows — fed by accurate and real-time data — are imperative.
Lockdowns, and the new hybrid remote/in-office models that many companies are adopting, have given a rise to a demand for built-in collaboration. Can finance team members sign in and look at the same budget, in real time, to see the state of the business and test multiple what-if scenarios? Like ease-of-use, real-time collaboration is also table stakes in the new normal.
And it’s not just collaboration among FP&A professionals. The GMs and VPs of Sales or Operations now want greater insight into the impact of their expenses and investments. Which efforts deliver the highest ROI? How is our money best spent? They saw the benefit of seizing micro-opportunities during the pandemic, and they too want to fine-tune their departments on a permanent basis.
No Turning Back
There is no going back to the old way of business budgeting and planning, which is why FP&A professionals refer to the current state of finance as the new normal. But it’s important to note that one of the reasons these changes will remain is that budgeting and planning were headed in that direction long before the pandemic and its lockdown orders. COVID-19 simply accelerated the trend.
Centage Corporation’s Planning Maestro is a cloud-native planning & analytics platform that delivers year-round financial intelligence. With Planning Maestro, Centage offers the sophisticated features needed by small and mid-market organizations to integrate budgeting, forecasting, and deep data analysis within one easy-to-use, scalable SaaS solution. For more information on how to modernize your office of finance with intelligent planning, view our product demonstration video, or call 800-366-5111.
