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Budgeting and Forecasting

how to do budgeting and forecasting

Title: Senior Accountant

Company: in-between

(Senior Accountant at in-between ) | Jul 2, 2013



| Oct 27, 2010

Hi, I am Kelly Battles CFO of Host Analytics, Inc a provided of SaaS financial applications including budgeting and planning software.

This is a very detailed topic to cover in a few paragraphs but here is how I would get started:

1) Begin with your current actual financials to guide the level of account detail you want to use in your budgeted/projection statements.

2) Then I would begin your budgeting and forecasting by building out your bookings plan and other top line items that may drive other assumptions e.g. units, pricing, new customer count. Once done then I would work your way down the income statement.

a. Translate bookings to revenue and deferred revenue if required by and based upon your revenue recognition policy

b. Estimate cost of goods sold

i. direct (product costs)

ii. departmental or indirect (Employee costs for customer support, and/or shipping and receiving)

c. Then estimate Operating Expenses by department, I typically break these down into two modules

i. Headcount and related expenses (salary, bonus, commission, PRT and benefits, vacation accrual )

ii. Discretionary OpEx (Employee Development, Facilities, Marketing, Outsides Services, T&E, Office and Admin, It Expenses)

d. Estimate CapEx and use this to calculate fixed assets for the balance sheet and depreciation for the income statement

e. Estimate other income and expense

f. You should then be able to create a basic P&L budget at this point, I would review

the trend of prior period actuals to your results to test if you are missing anything

3) Then for the balance sheet:

a. You have done deferred revenue and fixed assets above.

b. Now estimate other balance sheet items such as AR, Accruals, Prepaids, AP, leases etc .

c. Set up an excess cash (asset) and a necessary to finance (Debt or Equity ) line as plugs in your balance sheet. If your budget is generating cash, the excess cash line will build to balance your balance sheet, and if not, you may eventually build up the debt/equity plug to balance it.

4) The build your cash flow statement by calculating changes to the balance sheet accounts, adjusting for non cash items and flowing net income through retained earnings.

5) In terms of the process, I typically use functional leads as budget contributors for departmental Headcount, OpEx and CapEx and then assume finance will do the majority of the rest centrally. Because our budgeting application is a SaaS platform, all budget contributors have real time access, input, and results independent of their location etc.

6) Once all in and statements are generated, I would then focus on iterating, making trade-offs to get the results right and performing sensitivity analyses.

7) In terms of frequency, we budget 2 years out, once per year and then have a rolling forecast that is memorialized once per quarter. We do shorter-term, less detailed cash flow forecasts weekly. We analyze our results monthly in detailed executive variance reports that are automated within our system.

I hope this helps and good luck!

Category: Bank

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