Is it Time for a Planning Tool? - 10 Considerations

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Since 2007 I’ve been selling B2B software in the Corporate Performance Management category. This includes financial planning, budgeting, forecasting, reporting, analysis, close, consolidation and so on. Out of that list, budgeting is generally where most businesses start when looking to modernize or scale their organization.

Why? Because the budget is the basis for all comparisons throughout the year. It’s how you track progress to goals. Without it, you’re operating on a strategy of hope and optimism.

I’m not going to focus on specific features, for the most part. You’re welcome to check RequirementPedia for an exhaustive list of those.

Consideration 1: Has the organization become very complex?

In the context of financial budgeting and planning, complex can mean a few things:

• Multiple dimensions are needed to build up the plan
• Many business units need to be rolled up like departments or subsidiaries
• Multiple currencies
• Growing product line
• Business is growing rapidly or experiencing a contraction
• The revenue model is complex and impossible to calculate in spreadsheets
• Etc.

To be clear, complexity has nothing to do with revenue or employee counts. I’ve had customers ask me in the past to give them specific metrics that define when the time is right to ditch spreadsheets. As much as I’d have loved to ask them their revenue and headcount, then say “Well yes now is the time!”, that is just impossible. There are plenty of $0 revenue companies who need a budgeting tool, and $100m businesses that don’t.

On this one, go with your gut. If you’re an experienced finance professional who is highly competent in a spreadsheet and are burning the midnight oil to accomplish basic job requirements, it’s probably time.

Consideration 2: How long does it take each month to generate financial reports?

I consider 3-4 days about the right time, in spreadsheets, to spend developing the monthly reporting package. That is the amount of time it should take for one person (like an analyst) to general the reporting in a standardized format. In that timeframe, I’d expect them to invest time exporting data from source systems (general ledger, CRM, ERP), merging them, and generating the package. The data aggregation piece alone might take a couple days.

Anything longer than that seems excessive and indicates that the organization has reached a point where this lack of data availability is impacting decision making. In certain environments, waiting more than a few days to see results can be expensive.

Also, consider your own sanity. Did you spend $200k for a finance degree to be stuck in a cubicle hacking together Excel files? I don’t think your professors sold the corporate finance profession that way. You’re probably looking for a seat at the table… and being a human data aggregator isn’t going to make that happen anytime soon.

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Did you spend $200k for a finance degree to be stuck in a cubicle hacking together Excel files?

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Consideration 3: Have any embarrassing mistakes been made?

Everyone has the story of an accidental email to all@yourcompany.com that included a detailed workforce plan with a few employees missing. Or that one time a few accounts from the ledger didn’t get added to the budget vs actuals reporting, causing the board to question the competence of the CFO. Or when CEO was presenting a great-looking slide deck to the new VCs and, when questioned by the prospective investors, gets tied up in knots because the data is inconsistent.

In finance and accounting, mistakes like the above can be catastrophic. Planning and budgeting systems can mitigate this by error checking (did I get all the accounts), security (only Susan can access the ugly layoff scenario), and consistency (generate a report for just this combination of dimensions).

That said, people are people. An incredibly competent analyst might export data from a planning tool and accidentally drop it on a shared file directory. But those situations will be reduced dramatically by putting in a system with more rigid controls.

Consideration 4: What does the ownership look like?

Are you operating a small, family-owned operation? Businesses like single owner restaurants, small retail businesses, owner-run general contractors, one SKU eCommerce businesses and so on usually are fine in spreadsheets. I don’t see much value in very small businesses purchasing planning and budgeting software. The market agrees, as I’ve seen many CPM software vendors try to tackle this segment only to raise prices and move upmarket over time.

Did you just get acquired by PE? They’re going to be more demanding and may have a very specific output required. Expect a ton of ad-hoc requests, no matter if they claim they’re “hands-off”. They almost never are.

Are you public? Then yes, you needed a proper planning and budgeting software platform yesterday.

Do you roll-up to a larger organization as a subsidiary? You’ll have firm deadlines and specific reporting formatting requirements for budgets, actuals, and monthly reporting. A dedicated planning and budgeting system will make that faster. If your parent organization only mandates very simple reporting, perhaps it makes sense to stay in spreadsheets.

Are you a high growth start-up with an involved board? Those board members are going to have questions. If you take a week to answer those questions, it’s a bad look. One of the newer CPM tools will help here.

Consideration 5: Has there been a change in the frequency and complexity of reporting requirements?

Sometimes a new board member, CFO, or investor comes onto the scene and has a different set of expectations. That might come in the form of a specific reporting format, more frequent deliveries of reports, or ad-hoc reporting.

If the frequency of these requests is manageable and the reporting format relatively static, there is no harm to continuing to use spreadsheets. That alone is not a significant enough reason to begin an evaluation. I advise against beginning a search for a system because of one or two monthly annoyances. The process of buying, implementing, and maintaining a budgeting and reporting software system will be more time consuming than simply dealing with that annoyance.

However, if you’re under major time pressure to produce reports quickly, many times per month, a financial reporting platform can be a life saver. Being able to respond in minutes instead of hours or days will change your life for the better and allow the business to respond to financial risks much faster.

Consideration 6: What is easier to justify? More staff or software licenses?

Increases in demand or system inefficiencies within a finance department can often be band-aided by simply adding more staff. Assuming that a staff member comes at a fair salary + burden and can be productive right away, it may be a faster route to immediate results vs implementing a new financial budgeting platform.

Let’s assume you’re hiring a Financial Analyst to do the monthly forecast aggregation and consolidate actuals in Excel. It may take this person 3-10 days per month to do this manual work, all depending on your tech stack. That leaves another 12+ working days for them to be productive on something else.

The average Financial Analyst pay in Denver is about $80k + 30% burden for a cost of $104k per year. If a software product can eliminate those tasks for less and provide some other benefits, it’s worth it. If not, make the hire.

Consideration 7: Have budget v actual results been consistently lopsided?

Most companies I’ve spoken to over the years work towards a ±5% budget variance. That said, the tolerance of budget variances is very industry specific. Software companies will be much more tolerant of variances, whereas a products company with tight margins won’t be.

Either way, if your existing budgeting or forecasting process is generating variances that aren’t acceptable, first determine where the existing process is failing. Buying a budgeting solution isn’t going to fix bad processes.

Maybe your sales managers or other department heads just don’t know their business like they should. Or maybe they lack the tools to do it accurately, leaving them to wing it in a spreadsheet. Or the company has a cultural problem where the budget and forecast isn’t taken seriously. Answers to those questions are going to justify your decision to buy something new or fix the existing process.

Consideration 8: Have any important decisions been delayed because analysis was not available?

Executives lean on the finance team to provide deep dive analysis into the numbers, especially when the business goes sideways. In some cases, delays in this analysis can end up costing a business a fortune. For example, what if a specific product’s margins suddenly deteriorated? Immediate action may be required. Perhaps a vendor raised prices, or shipping skyrocketed. It would be nice to know, and soon, so that the problem can be addressed before it gets worse.

However, understanding the true impact of these delays is difficult to measure, which is why I don’t see this issue as a top concern when speaking with prospective CPM buyers. It’s usually there if you dig, but nobody can seem to quantify it.

Consideration 9: Does a rolling forecast process matter to the business?

Every CPM vendor is going to tell you that rolling forecasts are an absolute must and if you’re not doing it, you’re totally bananas. The fact is that there are millions of companies around the world who barely forecast at all. They’re usually smaller companies with an unpredictable business model and have managed to survive without rigorous financial discipline.

Others only do a re-forecast quarterly, or just once at the 6-month mark. If it only happens rarely, with few people, and the business is straightforward, spreadsheets are probably fine.

If ownership is looking to re-forecast the business every month, with various collaborators, a forecasting software platform is going to make this dramatically easier and less of a burden each month on the finance team.

Consideration 10: How ugly is the data aggregation process?

Let’s face facts here – data aggregation is the most boring, tedious job out there. While you’re doing it, you’re probably asking yourself some critical questions.

• I went to college… for this?
• I should have majored in Advertising so I could drink all day.
• Which data source did I forget?
• That subtotal looks wonky. Meh.
• I wonder what sunshine feels like.

Data aggregation is the most common reason why finance teams start the search for a planning and budgeting tool. This is where most of the mistakes happen. It’s the highest risk activity when done manually and a total snore. Each source system has its own formatting, nuances, and annoyances. They all require some sort of data transformation before they can be included in your sheets.

If all you’re doing is exporting a flat file from Quickbooks each month and comparing accounts to each other, your spreadsheet is probably fine. That takes a few minutes, and maybe another 30 minutes to link those accounts up with budgeted value and calculate the difference. But if you’re bringing in multiple sources, calculating drivers, and making versions, a planning and budgeting software platform is going to be a big help.

In Conclusion

Everyone at some point becomes frustrated with a manual, spreadsheet-based process. Small annoyances are never going to be enough to justify a purchase. You need several, and they can’t just be about you. I’ve never seen a CEO approve a purchase because it enabled the finance team to leave work a few hours early on Friday. Sounds harsh, but that’s life in G&A.

When the annoyances reach critical mass and impact business performance, that will more forcefully justify a purchase decision. While building a case to begin evaluating tools, make sure you’ve documented the considerations above in a format that appeals to the success of the business, not your personal needs.

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