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Manufacturing a Bad Business Budget is Bad Business

Manufacturing a Bad Business Budget is Bad Business, Centage
Industrial engineer writing on notepad in factory

It’s somewhat ironic that a company with ‘precision’ in the name of one of its’ divisions was struggling to create a business budget that was precise enough to accurately manage their operational and financial needs. But it’s not that uncommon.

At Centage, we did a case study last year about our client, McAuley Engineering, that describes their dilemma and some of the challenges that they faced in creating functional budgets that intimately tied their production volumes to their customers’ needs while meeting their regulatory requirements and analysis needs. McAuley is based in the UK and they design and manufacture for the aerospace, transportation, energy, and materials handling industries.

While I say that it’s ironic, I also know that it’s a difficult situation to manage. Those of us who work in service and SaaS industries sometimes fail to recognize the complexities of cost accounting and the challenges inherent in budgeting for production facilities. Or maybe it’s that we do understand it but chose to side-step it by shifting our careers in another direction. Either way, there’s a lot we can learn from thinking through their processes and understanding how they resolved their issues and have since flourished.

Reporting needs are a given. McAuley recently received a significant investment to grow their business so keeping a close eye on cash flow and the returns they’d receive was critical. Fortunately, with Budget Maestro, you’re producing double-entry accounting transactions when you budget so both a cash flow and a detailed balance sheet are produced as each entry is made. That saved McAuley a significant amount of time and they could re-allocate it toward engaging in additional analysis and optimizing their operational projections.

Manufacturing facilities like McAuley Fabrication, must consider their production line capacities, their customers’ end product projections, and fluctuating material costs as they design their revenue goals and inventory requirements. That’s a lot of moving parts. Then, since they’re in the UK, throw in the value-added tax (VAT) which has to be added to costs throughout the production stages in order to comply with regulation and remittance requirements. If you don’t develop your budget incorporating VAT, how are you going to make a valid comparison of your budget against your actuals?

You’re not.

It’s gratifying to see the aftermath of a complex budgeting method transition into an orderly, more deeply developed budgeting process that relieves the stress of budgeting logistics and produces better, more meticulous results.

We know that business budgeting and forecasting aren’t one day events. Yes, 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 throughout will change. Using tools that effectively manage those changes without falling apart could be worth its weight in gold.

If your business budgeting process isn’t providing you with the results you need to make critical business decisions, take a look at our McAuley Engineering Case Study to help determine if there may be a better way of managing your budget.

Businesses of every description rely on the Budget Maestro™ family of software solutions by Centage Corporation to improve the efficiency and effectiveness of their business budgeting and planningfinancial forecastingfinancial consolidation and reporting processes. For more information, take a tour of Budget Maestrocontact Centage, or call 800-366-5111 now.