As change adds uncertainty to businesses across industries, finance leaders are tasked with effectively analyzing, monitoring, and predicting the financial performance of their organizations with a new level of granularity. Establishing a detailed FP&A process can be especially challenging for manufacturing and distribution organizations.
Multiple entities, products, and projects, payroll variations for different groups, and changing workforce needs to meet anticipated production requirements all add complexity to manufacturing budgets. Revenue can come from multiple sources, and may be based on utilization or percent of completion. Manufacturing facilities must consider their production line capacities, their customers’ end product projections, and fluctuating material costs as they design their revenue goals and inventory requirements.
Depending on where the manufacturer is located, there could be additional taxes and/or regulatory fees that need to be added to costs throughout the production stages in order to comply with regulation and remittance requirements.
The need for FP&A software to streamline manufacturing budgeting
That’s a lot of moving parts. If you don’t develop your budget incorporating these variables, taxes, and fees, how are you going to make a valid comparison of your budget against your actuals?
We’ve had many conversations with customers about their common pain points when it comes to putting together an accurate manufacturing budget, a plan that can be relied upon to maintain stability and support growth.
Often, the level of detail and accuracy required is either not supported by their current FP&A systems, or it involves a manual, time consuming process to pull together the data in Excel or other spreadsheet tools.
Manual processes don’t allow our users to build manufacturing budgets tailored to their specific needs:
- Budget by product SKU, product lines or customer
- Track costs of goods sold
- Perform inventory planning
- Manage backlog/bookings
- Budget for overhead expenses
- Perform unit based budgeting
- Calculate gross margin
Benefits of modern FP&A for manufacturing budgets
To get beyond these pain points, many manufacturing organizations are modernizing their budgeting and planning by turning to FP&A software that not only streamlines and simplifies the process, but also provides greater control over every aspect of financial management and planning. Key aspects of modern FP&A software include:
Automation: Built-in budget and forecast processes. Routine tasks are performed faster, and there are no broken links or formulas to maintain as with spreadsheets.
Visibility: Integrate and normalize data from multiple sources, ensuring accuracy and providing a line of sight into current and future financial health.
Collaboration: Work with stakeholders to quickly test assumptions and deliver accurate forecasts. Provide practical recommendations backed up by rock-solid data and insights.
Agility: Connect virtually to any data source, creating a single source of truth. Know with confidence what the next steps should be, and why.
FP&A software saves time by automating and streamlining routine tasks, ensuring everyone is on the same page with securely assigned budget versions. Built-in financial logic can handle complicated revenue streams. Most importantly, modern FP&A software supports budgeting at any level of detail, and is easy to reconfigure when your structure changes, a common occurrence for manufacturing organizations.
Formula-free, drag & drop FP&A for manufacturing
Centage’s FP&A software delivers a competitive advantage to the finance team, allowing you to easily budget, forecast financial performance, analyze results, and share critical information across the business. We have many manufacturing customers that have realized the benefits of the solution. Here are a few of their stories.
One transportation and materials handling customer was struggling with trying to create a business budget precise enough to accurately manage the organization’s operational and financial needs. For this industry, this is not that uncommon.
Some of the challenges they faced were creating functional manufacturing budgets that closely linked production volumes to their customers’ needs, while also meeting regulatory and analysis requirements.
This customer had received a significant investment to grow their business, so keeping a close eye on cash flow and the returns they’d receive was critical. With Centage, they were able to produce double-entry accounting transactions when budgeting, so both a cash flow and a detailed balance sheet are produced as each entry is made. That saved them a significant amount of time that they then re-allocated toward engaging in additional analysis and optimizing their operational projections.
Case study: Price Family Vineyards & Estates
Another customer , Price Family Vineyards & Estates, had been using Excel for budgeting. As the business grew, so did the complexity of their budget.
All budgeting, forecasting, and reporting data would be manually entered from their accounting software reports to see how they were tracking to plan. If something was off, it meant searching to find the dollar amount within the hundreds of GL accounts in the budget. Then when multiplied by multiple LLCs, they were spending days upon days to get the reports completed.
“Our winery budgets are quite extensive. Prior to Centage I’d have a spreadsheet with 20 tabs, all of which were linked to a GAAP-based P&L on the first tab. I’d spend hours pulling all the information to it, and once I did, I’d spend more hours ensuring it proved out,” said Shelly Golly, Price Family Vineyards & Estates’ Controller.
Now, when she enters the data into QuickBooks, it flows into our FP&A software and updates all of her financial statements automatically, following the business logic of each entity. Reports for management that used to take days to create now take a few hours, including the time it takes for her to update the data, review it, and distribute among the managers.
“Now more of my time is spent focusing on analyzing the data.”
We know that manufacturing budgeting and forecasting aren’t one-day events. Annual budgets must be nailed down and approved, but changes will happen.
If your customer’s order increases by one bus, airplane, or production line, your labor, materials, inventory, costs and expenses will change. Armed with the right tools, finance leaders in manufacturing can effectively manage those constant changes and reflect them in updated budget and forecast models.
Book a demo to see how Centage can help manage the pain points specific to manufacturing industry FP&A.