The primary focus of budgeting and forecasting at a majority of companies is the Income Statement and associated KPIs (Revenue, EBITDA, Net Income). Significant investments are often made to increase the accuracy of the budget and forecast via driver based modeling for key P&L line items such as Compensation, CAPEX, etc. Planning for the P&L is distributed across the enterprise to collect assumptions that drive business performance. Budgeting and forecasting of Balance Sheet and Cash position is often times done offline by a smaller group in finance.
Meanwhile - Balance Sheet and, more specifically, Cash are critical business variables that need to be understood and closely managed. This is even more important in fast growing companies that may rely on limited sources of funding to help fuel their growth before they achieve break-even point. Any economic growth that is modeled in the Income Statement can only be achieved if there are adequate sources of funding in the long term and cash balance can be sustained. A number of our customers expressed that understanding their cash balance over the medium term was one of their top priorities when installing a new finance system.
An Integrated Financial Budgeting solution that connects the dots across the financials can create a lot of efficiency and increase insight. A simplified example of a model that we used with a number of customers can be seen in this video. Using an interconnected set of inputs and assumptions that are driven by the end user, every financial assumption automatically translates to the P&L and balance sheet and shows the resulting impact on cash. An actual model will support much more depth with a much larger variety of assumptions, some of the sample transactions shown here are the following:
This model is powered by IBM Planning Analytics (TM1), which is uniquely positioned to support such integrated financial modeling. Among many advantages, the key benefits when using IBM Planning Analytics (TM1) are the following
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