Here’s a common scenario: It’s 5:00 in the afternoon and your CEO wants to know what would happen if the company divested itself of the New England division. What’s the impact of such a divestiture on profitability? And are there any hidden surprises that can harm the company’s balance sheet 12 or 18 months from now?
Good luck trying to answer those questions with a spreadsheet. To begin, it’s extremely difficult to build a spreadsheet that represents a complex company. The financial team is forced to piece together multiple spreadsheets with different data points, and rely on complex formulas and macros to arrive at answers, like the impact of eliminating the New England division.
That’s where pre-programmed business logic and accounting rules come in. These are rules that are built into a budgeting software platform and designed to ensure accuracy and confidence in the budget as the finance team tests multiple what-if scenarios.
“Pre-programming” simply means that all the complex coding required to process your financial information and transactional data in compliance with your business logic and the GAAP accounting rules is packaged behind intuitive drop-down menus.
Let’s say you wish to enter the payment terms for a variety of vendors, some of whom must be paid immediately, others who must be paid within 30 days, and still others in 60 days. Once you enter the vendor, you can select the correct payment terms by selecting them from a drop-down menu.
Pre-programming in general offers distinct benefits. It:
- Ensures that all information and transactional data that users enter into the budget will flow through financial statements according to the way your business works and is compliant with US GAAP accounting rules;
- Allows you to almost instantly generate accurate future-looking financial statements. In a sense, they turn your budget into a living, evolving document you can use as a real-time planning tool.
Let’s see how each works.
Business logic is a representation of how a company is structured: number of divisions, offices, employees, contractors, how they roll up, payment terms for vendors, customers, employees and so on.
It’s also all the drivers that are based on specific methods to create budget lines, such as:
- Budget records that are dependent on other records, KPIs or other driver-based (?) data
- Spread of expenses and revenues according to pre-existing spread methods
- Application of customer receivable terms and vendor payment terms to cash received and disbursed in the correct budget periods and other logic
As users enter financial information and transactional data into the model, it is automatically processed according to the company’s unique business logic. That business logic is generated at the time the model is first defined. In the case of Budget Maestro, Centage’s Smart Budget solution, applying pre-built logic is a matter of selecting the right terms from pull-down menus.
Accounting rules are similar in concept to the business logic, except their purpose is to ensure all your data and financial statements are fully US GAAP-compliant.
Pre-programmed accounting rules ensure that every budget line will cause the values representing GL account balances to update in every budget period, as well as contribute to the generation of the forecasted financial statements and other operational reports.
Spreadsheet programming does not enforce the accurate flow of transactions throughout the models. Users can define the formulas and flow as they please, there is no need to conform to established accounting standards.
Pre-Programmed Rules Deliver Maximum Flexibility
With every aspect of the model automatically conforming to your business logic and accounting rules — supported by coding that never breaks — financial teams benefit from a combination of maximum flexibility and high confidence in your budget models.
You can test any scenario or plan with full confidence that Budget Maestro will always create accurate forward-looking balance sheets, cash flow statements, P&L projections and so on that are synchronized to your underlying budget.
Pre-programmed business logic and accounting rules are just one of the benefits of Centage Corporation’s Budget Maestro™, which provides businesses of every description with a family of Smart Budget software solutions designed to improve the efficiency and effectiveness of their business budgeting and planning, financial forecasting, financial consolidation and reporting processes. For more information, take a tour of Budget Maestro, contact Centage, or call 800-366-5111 now.