Balance sheet planning is included for multiple entities

Description

The CPM system ensures that changes in the income statement (like revenue, expenses, and profits) and the cash flow statement (like cash from operations, investing, and financing) are accurately reflected in the balance sheet for multiple entities. It is integrated with other parts of the business planning process, like sales and operational planning, HR planning (for payroll liabilities), or capital expenditure planning, ensuring that the financial implications of operational decisions are accurately reflected in the balance sheet.

Example Use Case

Scenario: A multi-entity corporation exists, dealing in various industries. Each entity has its financial structure, which cumulatively mirrors the overall financial health of the corporation. The executives want to see the forecasted balance sheet of each entity to plan future investment and expansion strategies.

Solution: With CPM software equipped with balance sheet planning features, the executives can simulate various business scenarios for each entity; hence they can form strategies backed by data. For instance, if one entity's projected balance is expected to suffer a hit, the management can accordingly plan for damage control.

Considerations

This may seem like a basic feature for a CPM tool, but it is not. Some tools do not come with pre-built mappings between financial statements in order to produce an accurate balance sheet. Because most planning customers do not plan based on a balance sheet, not all vendors have invested significantly into this area. As a matter of fact, when demonstrating software products, this is almost always skipped.

Make sure to ask the vendor if the balance sheet works out of the box, or if it will require labor to configure and maintain. Confirm that it can represent multiple entities on a consolidated balance sheet, while at the same time showing individual entities.

Lastly, investigate how granular your planning and scenario analysis can be with the balance sheet. Ideally users can plan and manage the company's capital structure by forecasting future equity positions and debt levels, helping in decisions related to dividend distributions, share repurchases, or new debt issuance.

This is a more enterprise-focused requirement. Do not expect this level of granularity with any of the lower cost tools on the market.

Questions to Ask a Vendor

• Scenario Analysis: Does your software allow scenario analysis based on the provided balance sheet forecasts? Can it be broken down by entity?
• Implementation: Does the balance sheet come out of the box? Will we need to invest in implementation to make it work with the Income Statement and Statement of Cash Flow?
• Capabilities: Can we use the balance sheet for modeling our equity positions and debt levels?