NATICK, Mass., Aug. 21, 2007 – The two most common budgeting and forecasting headaches experienced by CFOs and finance executives at small and mid-sized businesses are gaining buy-in from other managers in the company and using Microsoft Excel® spreadsheets, according to a recent study, Centage Corp. Vice President of Sales and Marketing Jim Nauen said today. Despite frustrations with spreadsheets, they remain the most common tool for budgeting and forecasting, used by 85 percent of Small to Mid-Sized Businesses (SMB) and 76 percent of Small to Mid-Sized Enterprises (SME), either alone or in combination with a General Ledger (G/L) or Enterprise Resource Planning (ERP) system.
The study by Centage and the Institute of Management & Administration (IOMA) identified budgeting and forecasting trends in the SMB market (companies with annual revenue of $10 million to $99 million) and the SME market ($100 million to $499 million in annual revenue).
“The survey results will help Centage customers and other SMBs/SMEs benchmark their budgeting process, tools and attitudes against their peers, and against companies larger and smaller. Many issues and processes cut across company sizes, but we found some challenges specific to SMBs/SMEs as well. Interestingly, more than half of the financial executives surveyed trust their own compensation and their companies’ projected cash flow to budgets they feel are, at best, only somewhat accurate,” said Nauen.
Budgeting trends identified by the confidential survey include:
- Most finance executives at companies of all sizes are not totally confident in the accuracy of their budgets in the areas of bookings, revenue, expenses, cash flow, and collections and disbursement. For SMBs, 61 percent are only somewhat confident, not very confident or not at all confident in their ability to accurately budget cash flow. For SMEs, the amount rises to 79 percent. Companies less than $10 million are the most confident in their ability to budget cash flow.
- The most common acceptable tolerance level for variances from budget to plan is plus or minus 5-10 percent, for revenue, expenses, EBIT and cash flow, at all companies. SMBs/SMEs are less likely to restrict variances to plus or minus 5 percent (36-37 percent do this) compared with larger companies (60 percent).
- The consequences for exceeding acceptable tolerances are usually minor, but can include compensation impacts, formal reprimands or job loss at 28 percent of the companies surveyed.
- The overall trend is to link compensation and goal achievement, seen at 47 percent of SMBs and 65 percent of SMEs. The trend is most prevalent at larger companies (82 percent at those with revenue of $500 million and above).
- The larger the company, the more compensation is put in this at-risk category: under 10 percent to 20 percent for SMBs, 10-20 percent for SMEs, and 20 percent or more for larger companies.
- Executives at more than 40 percent of the SMBs/SMEs view their budgets as extremely or very important cash flow management tools, and about 40 percent rate them as somewhat important. The budget’s cash flow management aspect is most important at companies with annual revenue less than $10 million.
- The most common Key Performance Indicators (KPI) are Net Income/Loss, Gross Profit, Operating Expenses as a Percentage of Sales, and EBIT.
- SMEs generally reforecast monthly or quarterly, which is more frequently than smaller companies and less frequently than larger companies.
Management Issues
Write-in comments most frequently highlighted management issues as the number-one budgeting issue faced by finance executives, specifically: managers not taking ownership or being accountable for their piece of the budget, not fully cooperating or participating in budget development, lack of understanding of the process or what’s required, not meeting deadlines, and padding budgets or providing unrealistic numbers.
Spreadsheets
The second most common “pain point” cited was working with spreadsheets or other technology-related issues. Four out of five of these replies expressed frustration specifically with budgeting in Excel spreadsheets, including: the manual and time-consuming process, frequency of errors, difficulties generating reports and rolling up numbers, and the inability to drill down into the numbers or create what-if scenarios.
Background
The Centage/IOMA 2007 Budgeting Survey: Benchmarks & Trends was conducted in spring 2007. More than 200 C-level finance executives at companies representing more than 20 industries, with annual revenue ranging from less than $10 million to more than $500 million, participated.
Centage Corp., (www.centage.com/) of Natick, Mass., is a leading provider of integrated budgeting, forecasting and financial reporting solutions for small and medium-sized businesses.
For over 20 years, IOMA (www.ioma.com) has been an independent source of exclusive business management information for senior and middle management professionals. IOMA products are created with two key goals in mind: to help you improve your on-the-job efficiency, and to enhance the financial performance of your organization.
