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How to Model Scenarios to Scale Your Company

December 7, 2017
Scenario Planning
Formula-free FP&A

Eliminate human error, increase confidence, and shave hours (or more) off your FP&A process.

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The U.S. economic outlook is bright; the U.S. GDP rose to 2.4% in 2017, unemployment is dropping, and inflation is a manageable 1.6%. It comes as no surprise that many companies see the next few years as their opportunity to grow their revenues and market share. At Centage, we are seeing demand increasing from our clients and our business is growing very fast.

Excel is still a favored budgeting tool for many companies, but it does impose limits to companies seeking growth. As businesses expand into new regions, increase headcount to compete for new business opportunities or take out loans to expand their capacity they insert significant complexity -- and risk -- into their budgets.

It’s extremely difficult to build a spreadsheet that adequately represents complexity.  I’ve seen financial teams attempt to knit together a dizzying array of spreadsheets, linked together with macros, as they desperately tried to provide the answers to what-if scenarios and other business questions their CEO and Board ask them. But Excel just isn’t up to the task.

Budget modeling is particularly urgent for companies with ambitious growth goals. They need planning tools that allow them to:

  • Measure performance vs. plan on a monthly, or even weekly, basis
  • Forecast future performance based on current actuals and the plan
  • Model scenarios for future business periods
  • Assess the impact of these scenarios to P&L, balance sheet and cash flow statement
  • Have confidence in financial projections to make decisions

A Smart Budget automatically processes all inputs according to a company’s unique business structure and automatically updates all outputs. Smart Budgets are activity based, and they automatically flow inputs through the financials based upon established logic and rules established, without any programming on the part of end users.

Thanks to that pre-programming, Smart Budgets are inherently flexible, allowing users to quickly and easily assess the financial impact of business decisions. When the Board of Directors wants to know the ramifications of opening an LA office or closing the Boston operations or outsourcing manufacturing to China, they can accurately calculate the impact those business decisions will have on the company’s P&L, balance sheet and cash flow statement.

Key Features of Scaling

To scale easily, the budget model must offer pre-programmed business logic and accounting rules. End users should not be required to define the underlying formulas that drive the calculations.

Pre-programming offers distinct benefits to users. First, it ensures that all information and transactional data that budget contributors enter into the budget flow through the financial statements according to the way the business works and adheres as well as all US GAAP accounting rules.

Second, pre-programming allows users to instantly generate accurate future-looking financial statements. In a sense, they turn a company’s budget into a living, evolving document that may be used as a real-time planning tool.

That last part is essential for any company seeking growth.

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