Budgeting & Forecasting

Annual budgeting is often a dreaded process, even for many finance professionals who are experts at creating them. But the idea that budgeting has to be a chore can be harmful to the potential growth of your business. Budgets are more than just a way to track and plan your spending for the year—they’re an opportunity to debrief on the previous year, align finances with a larger strategy, refine goals, have strategic discussions, and align leaders across your organization. In this blog, we’ll walk through 6 key annual budgeting best practices that help you do all of the above and more. 💡Key Takeaways:  Annual corporate budgeting processes should be collaborative, strategy-driven, and data-informed. Budget teams should include representation from all business units. It’s critical for budgets to be strongly aligned with larger organizational objectives. The annual budgeting process is best executed using a centralized planning software tool with AI-powered predictive analytics capabilities. What’s the Real Purpose of Annual Budgeting? By its simplest definition, annual budgeting is a financial planning process that ensures an organization has the monetary resources it needs for the coming year. In practice, however, it’s undergoing a bit of an evolution.  Much like the IT assets and infrastructure that are now such a huge part of every business budget, the annual budgeting process is shifting from an operational support project to a strategy-driving activity. Thanks largely to the emergence of big data and AI-powered predictive analytics, budgeting and forecasting can now be done with more insight than ever before. Real-time insights and reporting give finance teams a clear view of how funds are allocated, ROI of specific line items, and ways to alter the budget so it’s better aligned with organizational goals. At the same time, data analytics platforms have democratized data across organizations, making it accessible and usable to everyone—budgeting information included. This means annual budgeting isn’t a closed-door affair for the finance team anymore. The best corporate budgets in 2023 are data-informed, collaboratively built, and aligned in transparent ways with the larger strategy and goals of the business. 6 Annual Budget Best Practices for Your Business Set and Know Your Goals Goals might seem like a given, but in the real business world, they’re often not prioritized. A study done a few years ago by The Economist found that a staggering 90% of C-level leaders from large companies say they failed to reach all of their strategic goals, due largely to inadequate implementation and delivery capabilities. Budget and financial resources, of course, play a large role in how well an organization can actually execute its plans and achieve its objectives. The first budgeting best practice to remember is starting with goals. If they’ve already been set, great—learn them and share them with your budgeting team. If your goals are unclear, it’s time to revisit our second budgeting best practice: Start at the top. Start at the Top Annual budget priorities start with leadership. While many executives don’t want to get in the weeds with line-by-line budgeting, they’re responsible for setting strategic direction and developing goals and objectives for the coming year.  Before you begin to build your budget, make sure your C-suite has a clear vision of the next year’s priorities, and that you understand how they should be incorporated into the budget. Build a Representative Budget Team The budget encompasses your entire business and thus should include representatives from each business unit. Having a representative team means you take the guesswork out of budget planning and make decisions based on firsthand perspectives. Further, when there is (inevitable) debate about parts of the budget, those who are directly involved can make their case. This team-based model may take some adjusting, especially if you’ve been operating with a traditional hierarchical decision-making structure as it relates to budget. But the payoff is undeniable—Deloitte found that 53% of companies experienced significant improvement in performance after implementing the team-based approach. Source: Deloitte Review Your Past Budget Your past budgets are a huge learning opportunity, and it’s an annual budget best practice to review the previous year’s budget to compare budget numbers vs. actuals. Be sure your team goes into this step with a non-judgemental mindset—while accountability is key, this is more about using what happened in the past to inform the future. For example: Perhaps you budgeted way too high for a usage-based software subscription. Actual usage is way under, and you only spent about half of what you anticipated. Did you simply predict wrong or is there another issue that needs to be resolved so employees use the tool more often? On the flip side, there may be places where you went way over budget and need to know why. All of this analysis—which should be a collaborative team activity—is aimed at gaining insight that will help you plan smarter for the year ahead. Choose the Right Budget Method  There’s plenty of debate about which budgeting method is the best, but the reality is what it is for most business preferences: Different approaches work better for different companies. The key is not to choose any one method, but to know the one that’s best for your business and use it consistently. Top down vs. bottom up are, of course, the two main approaches to annual budgeting, but new methods such as zero-based budgeting are also gaining popularity. Many factors play a role in which is right for your organization—company size, maturity, leadership style, and the finance skills of individual department leaders (among others).  Your finance team and C-suite leaders should determine the right method and share it with the budgeting team so that everyone is on the same page. Adopt a Centralized Data Tool Perhaps the biggest barrier of all to successful budgeting are siloed, manual spreadsheets being used to build a piecemeal budget. To truly execute the team-based, collaborative annual budgeting process we talked about in this article, you need a centralized planning platform that puts your data in one place. Not only this, it creates a shared, real-time view of your organization and budget. You can build your budget with confidence knowing everyone’s perspectives are based on the same accurate information, and everyone feels valued because they have access to the same insights to inform their decisions. Leverage Predictive Forecasting AI-based predictive forecasting models have changed the game for finance teams and their annual budgets. Not only does it improve the accuracy of your forecasting overall, but it makes you more agile and resilient by allowing you to plan for multiple scenarios as well as quickly foresee when outcomes may be different than originally predicted. Choose a planning tool that leverages AI-powered analytics in its budgeting features so you can stay a step ahead—even amidst uncertainty in the external market. Transform Your Budgeting Process with Vena Budgeting is now a central part of strategy planning and organizational agility. To build and maintain a budget that positions your business to grow, you need the right tools in place to make it possible. Vena’s complete Excel-based Budgeting and Forecasting Software can easily integrate with your source systems, has feature-rich financial forecasting software, and provides a number of Excel-based budgeting templates for planning revenues, operating expenses and more. Request a demo today to learn how Vena can help you transform your budgeting process. Transform Your Budgeting Process Schedule a demo to learn more about how Vena’s Budgeting and Forecasting Software can transform your budgeting process with easy integrations, financial forecasting and helpful templates.

All businesses engage in budgeting and forecasting activities to some degree—and if you’re an executive, finance leader or operations professional, improving your budgeting and forecasting processes should always be a top priority. Budgeting and forecasting help you formulate strategies, plan for the future and align your goals across the entire organization. Both processes are crucial components of every company’s growth journey, especially during periods of change. But even though budgeting and forecasting are similar, there are some key differences that set them apart. It’s important for finance leaders to understand these differences so you can prioritize what’s important and allocate your resources accordingly. In some cases, you might even want to assign budgeting and forecasting to separate teams so you can keep a clearer focus on each specific process. So what is budgeting, what is forecasting, why are they both so critical and why do companies invest in budgeting and forecasting software? To appreciate what they are and how they contribute to organizational success, let’s unpack budgeting and forecasting and drill into challenges, best practices and major differences between them. Read on to discover: Quick Links What Is Budgeting? Budgeting is the process of planning your company’s revenue and expense figures for a specific period of time. It involves identifying available cash flows and allocating financial resources for your company’s required spending.  Here are the primary characteristics of a typical corporate budgeting process: For an annual budget, the process usually takes between three to six months to complete. When finished, the final budget includes detailed financial documents such as the income statement, balance sheet and cash flow statement. The budget provides measurement metrics that management can use to assess financial progress. Employee compensation plans are finalized during the budgeting process. The budget is not normally disclosed to external parties. What Are The Benefits of Budgeting? Budgeting allows you to chart your organization’s path and assist your management team with strategic business planning. There's many different types of budgeting processes, from incremental to annual budgeting. No matter the method you choose, the process results in a clearly defined plan that’s reflective of your company’s financial and operational goals. Typically prepared annually, budgets provide important guidance regarding what your business can expect to accomplish that year.  Budgeting also has plenty of other benefits, including: The corporate budgeting process forces management to examine your company’s financial activities and assess the viability of each individual expense. Budgeting requires detailed documentation of all the sources and uses of cash, ultimately enabling management to anticipate cash flows with accuracy. Since budgeting often starts from the bottom up, many cross-functional stakeholders are involved in the process. This instills a sense of ownership among employees and motivates them to meet their budgeted goals. You can periodically compare the budget with up-to-date financial results, providing real-time insight into how your company is performing. (A variance analysis of the actual versus budgeted income statement is a good example of this.) Since individual responsibilities and internal hierarchies are often accentuated during budget season, this clarity of roles can promote rapid responses to challenging situations. Budgeting makes it clear exactly where and when financial resources are needed so you can allocate them accordingly and keep the business on track. However, because budgets are prepared so far in advance and based on a fixed set of assumptions, they can quickly become outdated as soon as those assumptions change. This is where forecasting takes over—when budgeting can’t meet certain time-sensitive needs. Learn more about Vena What Is Forecasting? Forecasting is the process of analyzing historical trends in order to predict future business results based on your company’s most up-to-date actuals. Done over a compressed time frame, forecasting typically focuses on major expenses and revenue line items.  Here are the main characteristics of the forecasting process: Forecasting is performed regularly after financial statements are released, usually right after a month-end or quarter-end close cycle. Forecasts generally show summarized projections of revenue and expenses. Key performance metrics are updated based on forecasted numbers, ultimately providing insight into how your business is performing. Publicly traded companies must disclose their high-level forecasts to investors. What Are The Benefits of Forecasting? When done efficiently and with reliable data, forecasting gives you the insight you need to reallocate resources proactively and help your managers make data-driven business decisions. There are plenty of other benefits to forecasting, including:  Forecasting reveals business trends that help you determine if you need to adjust course. It’s easier to manage cash flows and capital requirements if you have a well-informed prediction of where future expenses are likely to fluctuate.  You can capitalize on financing and investment opportunities if you present reliable forecasts to your investors. You can draw on your forecasted numbers as the logical starting point for your next budget. Forecasting allows managers to focus their attention where it’s needed, especially in the short term. Budgeting and forecasting are complementary, but they’re definitely not the same. Before we get into best practices and common challenges with budgeting and forecasting, let’s break down the key differences between them. Budgeting vs. Forecasting: Key Differences Explained We already know that budgeting is figuring out how much money your company will need to spend in order to achieve its desired business results. Forecasting, on the other hand, is about proactively analyzing the budget and using both historical and real-time data to predict what those business results will look like. Check out the table below to better understand the key differences between budgeting and forecasting:   Budgeting Forecasting Projected Timeframe: 1–5 years Periodic Forecasts: The rest of the current fiscal year. Rolling Forecasts: Usually the next 5 quarters or more. Average Preparation Time: 3–6 months 1–4 weeks External Disclosure: Not Disclosed Disclosed (at least for public companies) Reliability: Less reliable later in the year when the numbers are outdated. More reliable because they’re based on up-to-date actuals. Best Used For: Formulating high-level strategies and business goals. Targeted decision-making in specific areas. Think of it this way: Your budget is your road map, highlighting key financial checkpoints for every phase of the business journey. But once that journey has started, it’s common for circumstances to change, ultimately outdating the original assumptions that were made when the budget was created. For proactive finance teams, best practices involve regularly reviewing your budget against the changing business environment, forecasting accordingly to determine where the numbers are headed, then adapting your plans as required. Learn more about Vena How To Build a Budget [In 7 Easy Steps] Budgets should always be as thorough and as detailed as possible. Generally speaking, your budget should include the following information: All planned revenue—including the types of revenue, value and when to expect it. Fixed costs for your business (employee salaries, rent, utilities, insurance, property taxes, etc.) Variable costs (supplies, travel and vehicle expenses, professional services, maintenance, etc.) As you build your company’s budget, it’s crucial that you follow these steps:  Review and understand all the required inputs for your budget (see above.) Analyze previous budgets and other historical data. This will help you determine your expense and revenue expectations for each fiscal month and year.  Consult with cross-functional stakeholders such as sales leaders, budget owners and C-suite executives so you can formulate the plan as a team. Determine if any capital expenditures (equipment, infrastructure, property, etc.) are required during the budgeted period. Prepare financial statements—balance sheet, income statement and cash flow—using your budgeted numbers. Identify KPIs and other performance ratios to see how the budgeted results stack up against previous years or anticipated changes in market conditions. Review the final budget and start looking at opportunities for strategic growth (investment and divestment opportunities, adding or reducing debt/equity, etc.) How To Generate a Forecast [In 5 Easy Steps] As you progress through your budgeted period, you should update your forecasts periodically as soon as your latest actuals are confirmed. This will give you a clearer picture of how your business is performing against your budgeted goals. Here’s how to generate reliable financial forecasts: Identify the key metrics (sales volume, marketing expenses, etc,) you want to focus on with your forecast. Ask yourself: “What am I trying to determine here?” Gather your latest actuals and input them into your forecast template. Determine the time frame for your forecast. (Periodic forecasts typically look ahead to the end of the budgeted period.) Calculate trends based on your historical and year-to-date actuals. Apply those trend calculations to your real-time numbers to come up with forecasted results. If you know of any variables that could skew your forecast (an upcoming influx of cash, merger, geopolitical conditions, etc.) be sure to account for those when you deliver the forecast to your stakeholders. Periodic forecasts are beneficial, but they usually only project out to the end of the current fiscal year. Rolling forecasts, on the other hand, are even more useful because they extend beyond that timeline. Rolling Forecasts Rolling forecasts are generated monthly, quarterly or weekly to help you plan for a defined period that’s beyond the scope of the annual budget—such as the next five quarters, for example. So instead of just projecting out to the end of the fiscal year, most rolling forecasts will predict the next 12 months or more. Once a fiscal month or quarter has been actualized, your forecast just “rolls” over to the next period so you never lose sight of your long-term business trajectory. Rolling forecasts are important for the following reasons: Businesses that prepare continuous rolling forecasts have more reliable information about long-term trends and performance, ultimately allowing you to mitigate risk and plan for the future proactively. Rolling forecasts use real-time data so they stay relevant all the time. You can tweak your forecasts on demand with up-to-the-minute numbers, which is helpful in fast-paced business environments where you might need to pivot on the fly. By projecting out beyond your current year, rolling forecasts ensure your future budgets and strategic plans are as well-informed as possible. Ready to start your own growth journey? How To Do Budgeting and Forecasting [11 Easy Steps] The budgeting process is hard work and there will likely be challenges along the way considering timeframes and all of the variables at play. So focus on the big picture, lay out a plan that makes sense and acknowledge that course corrections will need to occur along the way. Here are 11 key steps you can take to run an effective budgeting process for your business: 1. Assess Current Year-to-Date Performance To accurately assess the future, you need to understand the now. For example, what is your say:do ratio? Did your business lay out operational plans and achieve their respective corresponding KPIs and metrics in the first half of the year? Were goals under or over achieved? You need this context to correctly inform future forecasts and financial targets. Remember—your forecast and budget are just articulations of your operational and strategic plans. Identifying the who, what, where, when and why of your business activities will help guide your budget. 2. Re-Examine Your Long-Range Plan Leverage your long-range plan (LRP), also referred to as a target operating model (TOM), by syncing with your CFO and CEO to provide guidance to the rest of your executive team. Ensure there are no fundamental changes in your business strategy and that this high-level guidance reflects the company’s growth rates and corresponding investment levels. 3. Update Your 18-Month Forecast (2H Current Year + Next Fiscal Year) Update your 2H forecast and extend through next year with bottom-up budgeting. Are there gaps between the bottom-up plan and your long-range plan. If you’re optimizing your business, encourage other leaders in your organization to drive optimal outcomes through your company’s investments. As an FP&A leader, you moderate the organization’s needs between its leaders and investors to determine realistic goals. 4. Summarize Your Plan and Go ‘Sell’ It to the Board Summarize and present your proposed targets to your board of directors. (Get their support—you need it.) 5. Finalize Your Detailed Planning Complete your detailed planning when there are approximately three to four months left in your fiscal year. That’s enough time to incorporate any feedback received from your board of directors. 6. Plan To Grow by Product, Segment and Region As you finalize your detailed plan, ask: Where will our growth come from? How are we going to achieve it? Are we pursuing new channels, developing new products or contemplating new commercialization models? Are these included in your plan? Whether it’s marketing, G&A or another function, plan holistically to align your metrics to drive business forward in leap functions versus linearly. 7. Update Commission Plans (Including Plan Provisions) Update your commission and compensation plans to ensure the general philosophies support the ongoing business strategy. This aligns the corporate strategy, operational plans and the incentivization of your team members. Stronger strategic alignment creates stronger operational alignment. After you’ve established provisions, your FP&A (or often an Ops) team will assume responsibilities for detailed quota planning for the year. 8. Q4 Plan Review In the final month of the year, update your forecast to validate against your budget. If nothing has materially changed since your presentation to the board of directors, proceed. If there are major changes to your business’s trajectory or performance, make the adjustments before your next fiscal year starts. 9. Distribute Finalized Budgets to the Business Align your stakeholders by sending formal communication of the final budget to all budget holders. A CPM software allows every stakeholder works off the same plan and you’ve limited the possibility of misunderstandings. 10. Annual Kick-Off It’s time to celebrate—share your goals, operational plans and annual budget with the company. 11. Make Budgeting and Forecasting an Agile, Ongoing Process Budgeting and forecasting never ends. Review and plan monthly, quarterly and annually to drive your Plan To Grow™, comparing your actuals against your plan to drive an agile, ongoing approach to business planning. Common Challenges With Budgeting and Forecasting Every organization approaches budgeting and forecasting differently, with the complexity and scope of your processes determined by your company’s size, structure and industry. But budgeting and forecasting challenges can persist for any finance team—and the first step toward solving them is recognizing what those challenges are.  Here are some common challenges that might be holding back your budgeting and forecasting efforts: Disparate and Disconnected Data Sources According to the 2020 Vena Industry Benchmark Report, data silos are a challenge for 57% of finance teams. If you’re spending too much time wrangling numbers from your ERP, CRM, HRIS and other data sources, you won’t be able to analyze the story those numbers are telling you. This slows down the budgeting and forecasting cycle and makes it harder to plan proactively when business conditions change. Data silos also make it difficult to collaborate with cross-functional stakeholders, leading to unreliable budgets and forecasts that don’t capture a holistic view of your business. Manual Processes in Excel The 2020 Pulse of Performance Management Survey revealed that 82% of finance teams still use offline Excel spreadsheets for budgeting, forecasting and other core FP&A activities. But the same poll also found that 54% of the Excel faithful aren’t happy with their spreadsheet processes—saying they’re too labour intensive, they take too long to complete and they’re difficult to manage across the entire business. It’s clear that finance teams everywhere are comfortable and familiar with Excel. But once your organization reaches a certain level of maturity, offline spreadsheets won’t have the processing power for advanced budgeting and forecasting. Using Excel alone to manage your budgets and forecasts can lead to version control issues, data integrity problems and formula errors from keying in numbers manually. Ever had a template crash when you’re pushing towards a deadline? (Because that’s what often happens when you treat Excel like a database.) Learn more about Vena     No Workflows, Audit Trails or Data Validation Measures Budgets and forecasts have a lot of moving parts, which means keeping your contributors aligned is a pretty important job. But if you’re searching your inbox for template files, chasing down colleagues for numbers and constantly losing sleep over whether your data is accurate, it’s tough to keep track of your progress and maintain a healthy work-life balance—especially when you’re spinning over “final” budget version 14.1-a. That’s why you need to have workflows, audit trails and data validation measures in place. Confident budgeting and forecasting is a whole lot harder without them. How a Complete Planning Solution Makes Budgeting and Forecasting Easier According to this report from Deloitte, emerging technologies are reimagining the future of finance—and the teams that don’t embrace this evolution risk falling behind the eight ball. For budgeting and forecasting in particular, a complete planning solution can help you get ahead by making your processes faster, easier and more reliable. Read on to find out how. They Automate Manual Data Entries So You Can Spend More Time on Analysis A complete planning solution leverages both relational and OLAP cube database structures so you can bring all your financial information into one source of truth in the cloud. By integrating directly with your ERP, CRM, HRIS and other source systems, you won’t have to input numbers manually while building budgets or generating forecasts. Instead, the cells in your templates would be mapped right back to your data sources so the values just flow in automatically whenever you need to refresh them.  Here are some other benefits of automated data entries for budgeting and forecasting: You’ll be able to reduce budgeting and forecasting cycle times by up to 50% or more. Your budgets, forecasts and actuals can be viewed from the same template so you can more easily spot variances and identify emerging trends. You can drill down into transaction-level details right from your budget and forecast templates. That way, you always know where your numbers are coming from. With all that time saved, you won’t have to waste days wrangling data for budgets and forecasts. Instead, you’ll be able to focus on what really matters: Planning for the future of your business. They’re Flexible and Easy To Use So You Can Drive Teamwork and Transparency Across Your Business According to the 2020 Pulse of Performance management survey, ease of use is the most important feature for a budgeting and forecasting solution to have. Automations certainly help with usability, but your software still won’t get used if it's clunky and difficult to manage. In order to keep cross-functional stakeholders involved in your budgeting and forecasting processes, you need to choose a solution that’s flexible and accessible for everyone. Here’s how a complete planning solution fits the bill: Some solutions leverage a native Excel interface so you don’t have to abandon your comfort and familiarity with spreadsheets. You can even map your existing Excel templates back to the database, enabling a much smoother transition for you and all your colleagues. Complete planning solutions don't usually require any maintenance or management from your IT department. They are truly “finance owned,” allowing you to organize budgeting and forecasting in a way that makes sense for your business. Cross-functional stakeholders can all work from the same connected template. If somebody needs to change something, audit trails let you track, validate and approve those changes. You can also add commentary so everybody knows what’s going on. They Give You Room To Grow With Scenario Modeling, Dashboards and More If your business is always evolving, your budgets and forecasts are evolving too. However, if you don’t have the ability to level-up your processes as you grow, you’ll have a hard time adapting to the ever-changing needs of your organization.  A complete planning solution makes it easy to facilitate growth with a range of enterprise-grade features that complement budgeting and forecasting, such as: Scenario Modeling: This makes it simple to test your budgets and forecasts against an unlimited range of potential future business scenarios. With more insight into what might happen down the road, your budgets and forecasts will be as well-informed as possible.  Customizable Workflows: Want to add an additional executive review step to your budgeting process? That’s what workflows are for. This feature makes it simple to see exactly who’s doing what as you move through the budgeting and forecasting process. Automated email reminders make sure nothing falls through the cracks. Data Visualization With Dashboards: Let’s face it—graphs are prettier than spreadsheets sometimes. Dashboarding is especially helpful for forecasting because you’ll be able to actually show your stakeholders where your business is headed. Your budgeting and forecasting processes might not require all these features right away, but growing with a complete planning solution makes it easy to leverage them when you need to. Recap The Ultimate Guide to the New Corporate Budgeting Your corporate budget is the tactical side of your business plan, ensuring resources are allocated in a way that sets your business up to operate effectively, meet its growth goals and keep up with ongoing market demands. Aligning your budget with your business strategy and KPI and goal setting is critical to its success. Most budgeting processes take either a top-down or bottom-up approach, either beginning with a set amount and allocating resources across departments (top-down budgeting), or having departments prepare budgets and request funds based on their needs (bottom-up budgeting). Zero-based budgeting, driver-based budgeting and predictive budgeting can help facilitate and drive your budgeting process, depending on your business demands and the goals you want to achieve. Rolling forecasts can help maintain visibility into recent performance while better projecting future needs—allowing you to remain agile to new trends and requirements while continuing to move the planning horizon forward. Better budgeting and forecasting with Vena Discover how Vena’s budgeting and forecasting software can take your planning cycle to the next level.

There are several automated budget spreadsheet programs available, but most organizations use some sort of spreadsheet, such as Excel, to make their budgets. Unfortunately, these programs lack the intuitive tools needed for accurate and complete reporting.   Even though these spreadsheets lack the necessary tools, 82% of organizations with automated budgeting software still use Excel. While we understand that it is the most widely used spreadsheet planning tool, we want to help you build a better, more accurate budget spreadsheet that uses automation to ensure your numbers are error free.  With so many organizations around the world that use Microsoft 365 suite—Excel specifically—for building their budgets, we’re going to help you build a better budget spreadsheet using Vena.                                                                                                                          Source: Enlyft 💡Key Takeaways: Choose which Vena template you want to use (i.e., OpEx, CapEx, etc.) to ensure you get one that is user-friendly and with an easy-to-read format. Create the income and expense categories and set a budget period. Input the numbers and use formulas to ensure accurate calculations. Consider using visual aids in your automated budget spreadsheet so people can scan the data for an at-a-glance overview.  5 Steps To Building Your Own Automated Budget Spreadsheet To manage your organization's finances effectively, an automated budget spreadsheet is a valuable tool in your arsenal. You can track incomes and expenses and identify how your organization can save money while obtaining a comprehensive assessment of your overall operating expenses. Here are the steps to creating an automated budget spreadsheet: 1. Choose Your Template A practical place to start when building an automated budget spreadsheet is to choose a template (i.e., marketing budget, OpEx, etc.). Vena has several options, including: Budget vs. Actual Report OpEx Budget Commission Tracking CapEx Budgeting Simple Marketing Budget Workforce Planning Resource Allocation And more                                                                                                              Source: Vena 2. Create Categories for Income and Expenses Categories make it easier for you to manage your organization's budget. Although the exact amount may vary from organization to organization, income and expenses are the primary two categories. You will then separate each into various sub-categories. Another method for tracking and categorizing these components is to determine whether they are fixed or variable. 3. Set Budget Periods When you create an automated budget spreadsheet, you need to determine the period of expenses to track. Monthly budgets are the most common, but you might find that quarterly budgets work for your organization.  Your budget period can be as short as a few days or as long as several years. Some organizations find that a weekly budget can help them focus on short-term, specific goals, while others find that an annual budget provides clarity on long-term goals.  Our program can take your short-term data and extend it over a longer period, allowing you to generate budgets based on rolling forecasts and what-if scenarios. Create individual columns for budget income and expenses, actual numbers and the difference between those data sets. It can give you improved insights into your organization’s progress, showing how accurate your predictions or goals were. 4. Input Numbers and Use Formulas Once you have set up your spreadsheet in the format you prefer, it's time to crunch the numbers. Once you enter the income and expense information (your central database will auto-populate this data for you when configured correctly), set formulas to automate the critical calculations. This also allows you to run an average to get a summary of your organization’s monthly spending and perform whatever calculations are needed. Certain formulas often vary from one program to the next, but most are available for quick reference online.  Since we use a Native Excel program, use the Microsoft formula references when building your automated budget spreadsheet in Vena. Also, when you start a business, you can't remember all the expenses or revenue off the top of your head.  Old bank documents will be able to guide you. Over time, you can update this number with real-time numbers.                                                                                                                                              Source: YouTube 5. Consider Visual Aids and Other Features Our spreadsheet and budgeting program goes beyond simple arithmetic calculations to help you gain control and a deeper understanding of your organization's budget. Here are some additional features to consider incorporating into your budget spreadsheet: Charts and Graphs: A visual representation of your budget can be easier than a row of numbers on a screen. For example, it can be a way to compare how much you spend in different spending categories.   Filtering and Sorting: Filter or sort data based on customizable criteria to filter the information to enable you to view spending patterns for a specific period. Conditional Formatting: Budget spreadsheets enable users to build rules for conditional formatting. For example, you can set conditions where cells display red or green depending on if the line is completed or budgeted for this month. It can help you see how you can stay within your budget at one point. The key purpose of incorporating visuals into your budget spreadsheet is to make it easier for others to get an at-a-glance overview of the budget. It also simplifies reporting.  Build Better Budgeting Spreadsheets With Vena Solutions Make better business decisions with improved insights using Vena Budgeting and Forecasting Software. From OpEx to CapEx Budget templates and marketing to budget vs. actual report templates, Vena makes building an automated budget spreadsheet easier than ever. Simply input data based on your company's expenses using the customizable budget spreadsheet. The instructions tab will guide you through inputting the data to ensure that you get the insights you need.  Excel at Automated Budgeting Vena's Native Excel Budgeting Software will help you automate your organization's budgeting spreadsheets for more accurate reporting. Manage your new and existing assets using this free template.

A discounted cash flow (DCF) model is essential for CFOs looking to make intelligent business decisions for today with insights from the future. It’s almost as though people expect us finance professionals to be fortune tellers.  And maybe we are.  The DCF model is a powerful tool that helps us get one step closer to predicting the future. We use them for evaluating a number of financial business decisions.  Unfortunately, the model relies on several assumptions that do not always come to fruition in the real world.  Let's break down what that means and how you can perform better DCF analysis with the right discounted cash flow model. 💡Key Takeaways: Discounted Cash Flow (DCF) models are a type of financial model used to estimate a company's intrinsic value. The basis of these models is that the business value equals the current value of future cash flows.  The three primary components of the DCF formula are the cash flow (CF), discount rate (r) and the number of periods (n) within the valuation timeframe. DCF analysis considers the time value of money in compounding settings. Once you have completed the future cash flows and set the discount rate, you will need to calculate the DCF.  The advantages of DCF include helping investors determine if an investment is worthwhile, and you can apply it to a variety of investments and capital projects. The disadvantages of DCF include the significant limitation of DCF analysis, and if the discount rate and cash flows are incorrect, your calculation will not be useful.  What Is Discounted Cash Flow (DCF)? Discounted cash flow (DCF) refers to valuation techniques that estimate the value of an investment based on predicted future cash flows.  Source: YouTube DCF analysis seeks to determine an investment's value today based on a forecast of how much money it will generate in the future. These analyses help executive leadership to make better business decisions. Discounted cash flow analysis also helps business owners and managers determine capital budgets and operating expenses.  What Are The 3 Primary Components of the DCF Formula? Let’s take a moment to review the three main components of the DCF model.  1. Cash Flow (CF) The discounted cash flows can come from any source, such as profits, dividends or sales of assets. For example, if a firm wants to invest in new technology, the cash flow from that investment could be the income generated from the sale of those technology products or periodic stakeholder payouts. A cash flow report will enable you to track these profits.                                                                                                       Source: Vena 2. Discount Rate (r) The discount rate is the rate that future cash flows get discounted to their present value. We recommend setting the discount rate at the rate of return requested by the investor—the minimum return required for them to invest in the company. You can also set the discount rate to the weighted average cost of capital (WACC). The WACC is the average of a company's cost of equity and its debt. 3. Number of Periods (n) This element within the calculation is the number of years in which analysts expect these cash flows to occur. Often set to 10 years, the life expectancy of most companies, we recommend setting this to 15 or 20 years. Calculating the DCF DCF analysis considers the time value of money in compounding settings. Once you have completed the future cash flows and set the discount rate, you will need to calculate the DCF. Use the formula below to calculate the DCF. What Is The Discounted Cash Flow (DCF) Formula?   DCF = CF1 ÷ (1 + r)2 + CF2 ÷ (1 + r)2 + CF3 (1 + r)2 + CFn (1 + r)2   where: CF1 = The cash flow for year one CF2 = The cash flow for year two CF3 = The cash flow for year three CFn = The cash flow for additional years   The CFn value should include estimated cash flows and terminal values ​​for the period. The formula is very similar to calculating the net present value (NPV), which sums the present value of future cash flows. The only difference is that the initial investment does not get deducted from the DCF model. Advantages and Disadvantages of DCF When performing DCF analysis or building DCF models, you have to consider all sides of the equation. We’ve prepared a list of advantages and disadvantages you need to know.  What Are The Advantages Of Discounted Cash Flow? Discounted cash flow analysis can provide investors and companies with information on whether planned investments are worthwhile. It's an analysis that provides reasonable estimates of future cash flows.  You can apply it to a wide variety of investment and capital projects. You can adjust that forecast to provide results for various what-if scenarios to help you and your team consider different possible predictions. What Are The Disadvantages Of Discounted Cash Flow? The main limitation of DCF analysis is that it is an estimate rather than an actual number. Therefore, the DCF results are also estimates.  What that means is that for your DCF to be beneficial, individual investors and firms need to estimate discount rates and cash flows correctly. In addition, future cash flows will depend on various factors, including:  Market Demand Economic Conditions Competition Technology Unforeseen Threats  Unexpected Opportunities We cannot quantify them exactly, so investors should understand this inherent drawback in their decision making. Robust estimates are possible, but we should not necessarily rely solely on DCF.  Firms and investors should also evaluate other well-known elements, such as expected return, scalability and exit strategies, when assessing investment opportunities. In addition, equivalent business analysis and asset-based are two additional standard valuation methods.  Get Better Cash Flow Analysis With Vena’s Cash Flow Management Solution   Vena Cash Flow Planning Software empowers your finance leaders to create driver-based models you can run monthly, weekly or daily. Already have a model you and your teams know and love to use? No problem.  With Vena, you can create direct or indirect cash flow statements using existing Excel templates for financial reporting. This enables you to navigate business decisions and prepare for any scenario quickly and confidently. The Future of Financial Process Automation Is Here Put your money to work. Manage cash flows effectively to predict long-term cash needs and pay off debts. Understand what drives your cash flow and set goals to plan for future investments proactively.

Financial forecasting accuracy is one of the most critical aspects of successful business scaling. Ultimately, understanding where your business is going and how your business is doing informs management about essential decisions related to hiring, expansion and line of business.  Many fast-growing companies have difficulty making accurate and reliable financial forecasts. Making strategic decisions and managing the expectations of investors and other stakeholders is challenging. We developed this comprehensive guide to help you improve your financial forecasting accuracy. It includes 12 tips to help you improve the accuracy of your financial forecasting.  First, let's discuss the challenges financial professionals face when forecasting the financial futures of their organizations. We'll also cover what modern approach will most improve forecasting accuracy. 💡Key Takeaways:   Forecasts are accurate if the actual numbers match the forecasted with minimal variances and when assumptions and decisions are sound, captured, timed and sized correctly. Some challenges facing finance professionals include: forecasting periods, data collection, input data issues, unforeseeable events and past data accuracy.  You must understand your business and its key drivers to improve your financial forecasting accuracy month over month. Collect data promptly for improved accuracy.  Clean "bad" data, use special events when anomalies are not errors and cannot get "cleaned." Change creation dates and the granularity of the forecast.  Model the history before modeling the future, communicate regularly with key data contributors, keep forecasts flexible and document results to make necessary improvements. What Is Accurate Financial Forecasting?  Financial professionals aren't capable of predicting the future (it would be nice if we could!). However, when they use historical data and have the right technology infrastructure in place early on, financial teams can improve analytics predictability and the accuracy of their predictions for the future.  According to FP&A experts, a forecast is accurate if the actual numbers tend to match the forecast with “small” deviations.  Another definition they highlight is "Forecast is accurate when all assumptions and decisions are correct, accurately captured, sized and timed." These two definitions demonstrate that small differences between forecast and reality are perfectly normal. However, the closer the finance team gets to their forecast estimate, the better their financial planning will be.  By applying the right processes, finance teams can perform an analysis of variance to investigate these discrepancies and ultimately minimize inaccuracies in their forecasting efforts.  Challenges Finance Pros Face With Accurate Financial Forecasting  Companies make financial projections for assorted reasons, such as managing their businesses, what-if scenarios, understanding working capital requirements and more.  With accurate financial forecasts, businesses can easily achieve their short-term and long-term goals. Finance specialists help businesses keep up with their forecasts. But preparing a financial forecast for a business is no easy task. It is a complex analytical process with many challenges and limitations. Fortunately, there are online tools that can assist in creating accurate financial forecasts.  Forecasting Period   The shorter the time, the more accurate the financial forecasts. The longer the time, the less accurate and more challenging financial forecasting becomes. In general, difficulties are less likely in the short term and more difficult in the long run. Source: WallStreetMojo     Forecasting for the next five years with data from prior years will make the process less challenging for the next 10 years. There may even be differences in the market shares or economic conditions of companies. Simply put, a shorter forecast period will always be more accurate than a longer forecast period. Data Collection   Collecting and aggregating all the financial data of companies to go further can never be easy. This task can take a week to several weeks to gather all the information needed to build cash flow and revenue forecasts. What are the latest upcoming proposals likely to be exchanged? What are the start dates? Is there a chance to slip? This type of request may seem more difficult for the sales team.  Collecting this data for forecasting purposes is one of the most significant problems in financial forecasting. And thinking about the customer is a bit difficult.  Will they continue their subscription?  Does the customer pay on time?  Are invoices sent at the right time?  We cannot easily predict these things.  Input Data Issues   Forecasts using linear analysis may be commonplace, but this type of forecasting does not account for future uncertainty. In statistics, linearity is necessary when making certain assumptions about the future.  However, there is no guarantee that the relationship between the two variables will continue. Essentially, "noisy" data can create correlations that do not exist.  Many factors come into play when making forecasts, especially on important topics. Human error (which is common) can mean millions of dollars in variance in incorrect predictions. Unforeseeable Events  Another problem with financial forecasting is unpredictability. Although businesses employ quantitative and qualitative forecasting techniques to make accurate predictions, unpredictability will continue to create problems.  These components are inherently subject to change and subject to forecast risk. For example, consider a retail store opening with a financial growth pillar. It, in turn, affects other retail stores in the particular area. It is something we will never be able to predict. There is a solution to this challenge. We'll cover it more when we talk about using "Special Events" to account for anomalies.  Past Data Accuracy  Financial forecasting entails using past business data to predict the future. Assuming your average business growth of 10% has been steady over the past four years, you can forecast that your business capital in the next four years will be 10%. But using this kind of system could create a mountain of financial forecasting problems. If a company has results that vary yearly, it makes no sense to use data from the previous period. In addition, financial data will not be available for startups as they will have to go through a rough estimate without any definite idea.  There are also cases where financial budgeting and projections are affected by external market events, which you do not capture by analyzing recorded results. 14 Tips for Improving Your Financial Forecasting Accuracy in 30 Days   We prepared a list of tips below to improve the accuracy of your financial forecasting within 30 days. Many require implementing FP&A software or upgrading your legacy systems. You can also use these tips to periodically fine-tune your forecasting processes.    1. Understanding Your Organization and Its Key Drivers  One of the simple approaches to understanding your business better is to look at income and expense flows. Which aspects are variable and which stay the same? Answering these questions will help you identify the key drivers of change. The process doesn't need to be complicated, and, in most cases, the answer depends on the proportions and volumes. For example, with sales, you need to realize the relationship between future price and volume. Along with the cost, you need to understand the unit cost and the vast step functions that happen with scale. Conventional financial drivers you need to know about include the company's recent history and common sense in your industry. The metrics for these drivers include:  Gross Margin Marketing  General and Administrative Expenses  Sales Productivity Revenue Per Unit Do not limit yourself to these, as there may be other factors that significantly impact your particular business.  2. Collect Timely Data  It is impossible to make a consistent forecast without something to measure. Try to get as close to the actual source of operational data as possible that is already well-defined in your system.  It will allow you to ensure that it has not been tampered with or altered. The fewer barriers there are between the data and you, the more accurate and valuable that data will be. Ensure you comprehend what the data stands for exactly (i.e., what the data is collecting) and are mindful of the larger context. While circumstantial information can be useful, you must understand how data relates to global performance. Part of this framework is when the data gets collected and the period it covers. It can vary depending on how IT teams could integrate the database at your organization.  Data must be accessible periodically and interpreted with consistent and reasonable definitions. For example, you need to know if the data record of the area you are applying gets permanently timestamped or if it is the latest record version. 3. Clean Bad Data     The Garbage In, Garbage Out principle applies to forecasting and many things. In this case, "Garbage In" is the historical data used by the forecasting engine to generate the forecast.  Poor historical data is by far the most common cause of forecast errors. Only by ensuring you have a clean amount of data in the forecaster can you hope to get good results. Cleanup is fixing errors with your historical data. Errors can get introduced into your data in several ways. You need to find a way to remove dirty data (bad values) from your data and replace them with correct values. That usually involves finding a second dataset to compare with the data you're currently using. When cleaning dirty data, you should not invent data, estimate the outcome or remove bad values. If you know the exact value, you should correct the error. Let the error be wrong if you do not have the right answer. Be sure to use special dates or, if possible, let the forecasting method handle it. The best way to avoid dirty data is to use an audited data source. Except for sales, verified data is usually unavailable. Some of the driver data you need will not get checked. It may not be available at the desired granularity. Generating these verified figures may take time and the data will not be available when you need it for forecasting purposes A final note on audited data. Just because you are using it does not mean it will not be error free. It usually means that there will be fewer errors and that the authority has accepted them. 4. Use Special Events     Data cleaning will fix errors in the data, but what about data anomalies? What happens when sales spike due to significant discounts or when stores close because a blizzard engulfs the area?  These anomalies are not errors and cannot be "cleaned up." Instead, you should use a feature in virtually every Excel-based system called "Special Days" or "Special Events."  This feature allows you to mark certain days on the calendar as "special." Mark a date (or days) as a special reminder for either response from the analyst. The analyst ignores the special date or uses other relevant, unique dates to accurately forecast a single event.  Special Dates is a very powerful tool that we suggest you do not abuse because abuse of this powerful feature often hurts accuracy more than it helps.    5. Change Forecast Creation Dates      The timing of the forecast—when the forecast gets generated relative to the forecast date—has a significant impact on forecast accuracy.  Specifically, creating a forecast one week from now will produce a more accurate forecast than a forecast created four weeks from now.  Generate forecasts as close as possible to the dates they represent. Ideally, you should create your forecast a day before you need it. Although this is not always possible, you can use this rolling forecast template to assist you.  With Vena, your forecast schedule is determined by when you need to post it to your associates in relation to when your schedule starts and the amount of time you want to allow for forecast review and schedule changes.  If you are creating forecasts more than two weeks in advance and experiencing problems with forecast accuracy, perform some analysis to determine if a newer forecast improves the situation. 6. Change the Granularity of the Forecast The "Law of Large Numbers" tells us that more significant numbers produce more accurate results than smaller numbers. Applying this rule to forecasting means that more significant numbers will generate more accurate forecasts than smaller ones.  If you are still having problems with the accuracy of the forecasts in previous steps, you need to generate larger numbers for your forecasting engine to work. You make bigger numbers by varying the level of detail than you expect.  Instead of forecasting by product line, consider forecasting by product category or division. Instead of planning for a quarter hour, consider planning for a half hour or an hour.  Changing forecast granularity can be a tricky business, especially if done in a production environment. That usually involves modifying the data source and the import process.  It may involve consolidating labor standards. It may also require changing the driver and store hierarchy.  The changes associated with this step must be well thought out and planned. However, improving the accuracy of your predictions can be worth the effort. 7. Consider Changing Your Forecasting Method   So far, we have suggested improving data quality, resolving data anomalies, improving data timeliness and increasing data size. In short, we focused only on data.  Another critical step to improving forecast accuracy is to look beyond the data and to test the forecasting method. For many people, this feels counterintuitive.  The natural reaction is to look at the forecasting method in advance, wondering how the system might solve the problem.  The "Garbage In, Garbage Out" principle makes that focus null and void. Until you have clear data on which to base your forecasts, you will never have an accurate forecast, no matter what forecasting method you use. Also, note that we did not call this step "Changing Your Forecasting Method." Instead, we suggest that you consider changing your forecasting method.  You have most likely performed an analysis to determine that a given prediction method is the right one for a particular driver, and at this point, you need to confirm that your initial analysis of the different prediction methods available to use is accurate. If it is true, a different forecasting method would be better only because something has changed dramatically with your data.  This change could be due to: A change in your business  If your results in the previous steps were common enough  The effort you put into cleaning and preparing the data for the forecasting process  To determine if a change in your forecasting method is warranted, you will need to perform your analysis again using the current clean data set. 8. Model Your History Before Modeling Your Future  Tracking ratio and volume back to revenue and cost factors is best. For example, forecasting methods work by reverse-engineering historical volumes and rates. Determine which factors have the most influence and which ones you expect to influence forecast changes. If you accurately model past revenues and expenses with these historic factors, you can be relatively sure that your forecasting process is correct.  If you plan for multiple periods, ensure integrity by preventing reassessing after each term. Use this reevaluation to determine whether the forecast should need adjusting up or down. 9. Communicate Regularly To Further Drive Assumptions  Use historical contexts you develop to question current assumptions about future drivers. For example, assess how these assumptions relate to past performance if these assumptions come from sales.  After that, if significant adjustments to the way it works are warranted, verify the timing of those changes thoroughly to ensure they're realistic. The operations team must be able to provide a roadmap for anticipated changes in business dynamics.  As the financial owner of the process, you must ask questions that provide transparency about how the change will unfold. Remember that operations teams are solely responsible for the driver predictions they provide. The future driver should always have an owner, or your finance department will own it by default.  Verifying your data and assumptions with senior management ensures that those responsible for delivering results are fully aware of the situation and further mitigate risk. 10. Keep Your Financial Forecasts Flexible   An organization is ever-evolving. Financial projections must reflect these changes. Decisions based on outdated information can lead to bad decisions. If you rely solely on an annual forecast, you are relying on outdated information. Adding flexibility to your processes by switching to a rotational forecasting model will allow management to align with up-to-date data to support their strategic decision making. 11. Account for External Factors Financial teams tend to use a laser-focused method when analyzing their business data. However, when creating your financial forecast, consider both the micro and macro environments in which your business operates.  Do not rely solely on historical data. Considering the competition and market conditions will enable your finance team to take a more holistic approach to their financial forecasting and planning initiatives.  12. Take a Lateral Approach to Forecasting  Most finance teams take a top-down approach when conducting business forecasting. However, they seek input from all functions.  For example, talking to the Head of Sales may provide greater insight into the predicted revenue projections or actual demand from prospects. This gives the finance team a more holistic view of how the organization operates and performs.  Many organizations will prioritize a corporate performance management strategy to better understand how each team works and supports one another. 13. Benchmark Against Competitors  When discussing competitors, you should analyze their performance to uncover trends, changes in strategy, opportunities or progress they have experienced over the past year.  By performing a competitor analysis using a benchmark report, you can conduct a side-by-side comparison to see how your business performs compared to other competitors in your industry and adjust your strategy accordingly. 14. Document Results and Make Necessary Improvements  Always be careful with your targets, ratios, volumes, rates and profits. Be practical, and when in doubt, use caution.  Above all, be careful to tie yourself to overly optimistic forecasts that derail your goals and jeopardize your integrity. A variety of forecast scenarios, such as probable-case, best-case, and worst-case scenarios, will get your organization to think through the full range of prospects and provide you with better protection against errors.  If you still haven't gotten where you need to be, do not just change your assumptions. Make sure that what you are changing is something you can operate and ensure you are trying everything using real business data.  Ensure your accountants, financial planners and analysts work with the same terminology and definitions for financial measures so you can easily compare actual results with forecasts.  Having a common language for financial terms also avoids confusion throughout the organization. Finally, carefully measure the success of your forecasts, especially in terms of accuracy, and make improvements as needed. Taking a Modern Approach To Improve Financial Forecasting Accuracy With the right technical infrastructure and processes, any finance team can streamline forecasting efforts and set up their business for success.  For startups looking to raise capital, improving the accuracy of financial forecasts will also provide robust investor reports and build trust among investors in the future.  By upgrading your technology stack and using a centralized database for all your data, your financial analysts can generate reliable and accurate forecasts from a single source of truth. Begin Improving Financial Forecasting Accuracy Today After you try our recommendations, your financial forecasting will be as accurate as possible, given the limitations of your data, business processes and available forecasts.  The foundation of a successful business is a clear understanding of what works, how it works and what to do if a particular approach fails. This knowledge will allow you to build on past successes and make strategic decisions knowing that you've done everything possible to ensure a positive outcome. Get more accurate financial forecasting with Vena FP&A Software and our industry-leading solutions. You’ll also want to check out our free financial Excel templates available for everyone to use.  Improve Your Financial Forecasting Accuracy With Vena Increase the accuracy of your financial data in an easy-to-use, Excel-based platform. Make business decisions confidently, knowing that with Vena, your financial data accuracy will ensure the accuracy of your financial forecasting. 

How much should you spend on advertising your business? While it's a common question, pinning down a cohesive answer is difficult because there are critical thinking elements behind each advertising decision and the budget a business needs to carry it out.  According to Shopify, companies should spend "10-30% of revenue back into ads." Fair enough, but this vague statement leaves more questions than answers. What type of ads? Should you spend 30% across the board, or 10% here and 25% there? To what channels should you allocate that percentage of your revenue?  Before we jump down a rabbit hole, let's look at some things to consider before deciding how much to spend on advertising. Don't worry, though. We will get to the answer.  💡 Key Takeaways: You will need to establish goals before you can consider your advertising budget.  Depending on the size and scope of your business and the various strategies you use, you'll want to look for ways to maximize your advertising ROI. Pick the best channels that reach your target audience and factor in additional costs, such as graphic designs, copywriting and time spent creating the strategy. Invest in an FP&A solution that ensures accurate budgeting and forecasting reports so that you can make more informed allocation decisions regarding your advertising budget.  How To Set Your Advertising Budget According to Growth Goals Source: YouTube Establish your business and growth goals before determining how much you should spend on advertising for your business. Here are some questions to ask yourself: Do I fully understand the target audience? What is the best channel to reach them? How many leads per month do I need to get? What are my revenue goals? How much more money must I spend to reach my goals? We suggest beginning with these questions and expanding on them based on what you can afford to spend based on your budgeting & forecasting analysis. Although, you need to consider more than how much is left to allocate to your advertising budget.  You need to consider the worth of every advertising dollar. How To Maximize Your Advertising ROI Depending on the size and scope of your business and the various strategies you use, you'll want to look for ways to maximize your advertising ROI. The image below shows what top Fortune 100 companies spent on search ads alone.   Source: AppleInsider Google's parent company, Alphabet, spent $774 million on search ads in 2020. While these big names can afford these high-dollar marketing strategies, your business will take a more modest approach.  Let's look at ways to maximize your advertising ROI so you know exactly how much to invest in each advertising channel you use.   Pick a Channel What are the best methods for reaching your target audience? It could be anything from a social media post to a billboard in Times Square.   When setting your paid advertising budget, it can be helpful to consider what others are doing.  For example, marketers will often spend 9% of their budgets on paid search ads, 14% on ads for social media and 16% on paid display (of which nearly half focus on paid ads known as retargeting). The graph below shows the various channels from which you can choose:                                                                                                     Source: FourWeekMBA Factor in All Costs    Setting up an advertising budget isn't as simple as saying what percentage works best for a specific campaign. Different strategies will have various additional costs associated with them, such as: Time Spent on Strategy Time Spent on Project Management Graphic Design Copywriting Services Publishing and Hosting We could fill this article with expenses you may not consider when setting a budget. Our advice is to leave extra room for additional fees associated with ad campaign costs.  Invest in Reliable FP&A Software Is your team still using Excel spreadsheets alone to prepare a budgeting report? If so, you could make advertising budget decisions based on incomplete data.  The problem with a standard Excel spreadsheet when it comes to budgeting and forecasting is that this Microsoft program is not a central database. It does not contain all the data your team needs to build a comprehensive report.  Reliable FP&A software will store all your critical business data in one place so that your team can create a complete and accurate report. They can do it in less time than previous methods, and the right FP&A solution will be an Excel-based platform.  Maximize Your Advertising ROI With Automation Ultimately, how much you spend on advertising for your business should never exceed what you can afford and that requires accurate reporting so that you know how to allocate every business dollar. You can't rely on Excel spreadsheets to give you all the necessary information.  At Vena, we made our FP&A software an Excel-native user's dream. Get the look and convenience of the spreadsheet you know and love with the powerful insights available only through automation. Know exactly how much you should spend on advertising.  Not only can you see what money is available to spend on advertising, you’ll also gain insights into which advertising dollar is worth more and where you might want to focus your marketing budget.   More Accurate Allocation With Vena  Maximize your advertising ROI with insights from Vena, the only native Excel Complete Planning platform. Get a sneak peek and try one of our free Excel templates.

When it comes to budgeting, where does your organization stand? Do you start at the top or build it from the bottom up?   While there are plenty of ways to go about your corporate budget, most fall under two categories: Taking either a top-down or a bottom-up approach. The process you choose can affect your business in different ways—and each comes with its own pros and cons. To make the right decision for your organization and to determine which will best enable you to execute on your financial operating plan, consider choosing a budgeting and forecasting software that lets you account for both models in turn.  Top-Down vs. Bottom-Up Budgeting While the end goal may be the same—a company-wide budget—both top-down and bottom-up budgeting approaches have different starting points and get to the finish line using distinctly unique routes. So what are the fundamental differences between them? What Is Top-Down Budgeting? Top-down budgeting starts with senior management. It’s up to them to create a budget for the entire company, allocating resources to each department according to company-wide objectives and organizational targets for the year ahead. Past performance and current market conditions are taken into consideration, while the previous year’s budget and historical performance help determine which departments should get what—with an eye on how departments contributed to past goals. Departments build their own budgets from there, based on the resources they've been allocated. Often, though, some funds will be set aside at the corporate level, allowing for final shuffles or extra calls for resources if departments feel they don’t have what they need to meet their individual goals. Top-down budgeting, in other words, is a form of “budget allocation.” It starts with a set amount and allocates funding and resources accordingly across departments, leaving it to them to develop new plans or reduce their existing ones based on the resources they’ve been allotted. What Is Bottom-Up Budgeting? Bottom-up budgeting, meanwhile, begins exactly where you’d expect: the bottom. That is, departments prepare budgets for their teams based on what they need for the next year: the initiatives they want to run, the programs they already have in place and the hires they want to make. To ease the process, company-wide objectives and expectations are often shared with departments first, to give them organizational-wide visibility as they make their plan and provide protection against siloed requests. Departments present their budgets for approval, and the finance team or budget committee goes through each from there, to approve or disapprove line items according to those larger organizational objectives. A company-wide budget emerges from that work. One example of a bottom-up budgeting approach is zero-based budgeting, which starts with a clean slate every time in order to justify and prioritize every departmental expenditure. Top-Down Budgeting: Pros and Cons Neither approach is inherently better than the other—and certain types of corporate budgeting, such as driver-based budgeting, will work with either model. The key is to understand how your own organization works and to make your budgeting process a natural extension of it. It’s also critical to understand the advantages and disadvantages of each model before choosing one. A top-down budgeting process, for example, empowers you to allocate resources based on company strategy and an overall picture of organizational performance and goals. As with any type of top-down management style, though, aligning your departmental teams behind the results may be more difficult. Pros of Top-Down Budgeting Executive buy-in is built in. Since management is involved early on, you know that your budget will be aligned with their viewpoint and goals—and that it will reflect the future growth plans and strategic direction of your business as a whole. And by capping departmental budgets based on overall goals, you make departments more accountable to those objectives.   It can be faster. A top-down budgeting approach is generally faster than a bottom-up method—and at the same time can create organizational transparency into business-wide spending. Cons of Top-Down Budgeting It can be more difficult to get departmental buy-in. Given that individual departments aren’t involved in the budgeting process, they may not be motivated to see it succeed. Intra-departmental strife may also result if one department feels their goals are being deprioritized in favor of another department’s objectives.   It can create a “if you don’t spend it, you lose it” environment. As a finance team what you see as an attempt to be efficient with your spending, departments may perceive as a threat to future resources. Which means they may feel the need to spend what they have even if they don’t need it to meet their goals—or risk having their next budget cut. Bottom-Up Budgeting: Pros and Cons A bottom-up process ensures that your budget contemplates the needs of every department so that they have the resources they require to achieve their goals and put your organization ahead on its larger strategic objectives. It’s generally a slower process for your finance team, though, as you incorporate all of the departmental requests into a cohesive overall plan. Pros of Bottom-Up Budgeting It’s often more efficient. Departmental teams, in general, have a closer eye on the resources they need to accomplish their goals—which means bottom-up budgeting is generally based on a more efficient and often more accurate assessment of where resources need to be allocated to get results..   It’s more aligned with departmental needs. Since the executive team doesn’t always have deep visibility into the individual programs or initiatives each department is planning, they may not know how or where to allocate resources to get the best results. Departments do, though. And since departments—and their managers—are ultimately the masterminds of their own budgets in a bottom-up approach, they’re also more likely to rally behind the overall results. Cons of Bottom-Up Budgeting It can lead to over-budgeting. Since every department wants to truly ensure they have the resources they need to meet all of their goals, managers will often pad their requests to give themselves wiggle room for changes—something that can throw off the entire organizational budget if you don’t keep an eye out.   It can take longer to create (unless aided by the right technology). Bottom-up budgeting starts with a series of smaller budgets that are then combined together into something more cohesive for the entire organization. Making those smaller budgets work together—and going through each line item to incorporate necessary changes to fit company objectives overall—can take both time and resources to achieve. It’s also something a tool like Excel wasn’t traditionally designed for so it can require a more sophisticated technology to make it work. (Check out The Ultimate Guide to Budgeting and Forecasting to help you better formulate strategies, plan for the future and align your company's goals.) Figuring Out What’s Right for Your Business Choosing which approach is most effective for your business means understanding the psychology of how your organization operates. Do teams work better when ideas are their own, or do they prefer your leadership to come to them with the best plan of action? And how is your organization at creating transparency in their goals and strategies so that you can pivot and reallocate resources faster? In some cases, you may not even opt for one model or the other, instead approaching your budget from both directions as a way of ensuring you have visibility into both departmental and organizational goals or to meet specific objectives. You may introduce a longer-term plan that takes a more top-down approach, for instance, then implement either a rolling or traditional plan for the nearer term using a bottom-up method. Or some years, you may choose to go into more detail on the cost structures of your goods or services—building a bottom-up budget from there. Other years, you may want to take the opposite approach. After all, in the end, the point of both top-down and bottom-up budgeting approaches is the same: to make sure resources are allocated intelligently and in a way that gives everyone what they need to build towards your overall business strategy and goals. If everyone has an eye on that, either model is bound to be successful. Learn more about Vena

In an economic environment that’s turbulent and prone to change, finance leaders need to be ready for anything. That’s true across industries, but even more so in the fast-paced Software-as-a-Service (SaaS) sector, where business can shift on a dime when prospective customers aren’t spending.  For some, it’s part of what makes the SaaS industry so exciting. But it also means SaaS finance teams need to be prepared to pivot. So how do they ensure they’re ready to pivot? Vena explored the answers in “Lessons from SaaS Leaders: Aligning Your Budget To Changing Business Goals,” now available on demand for members of Vena’s Plan to Grow platform. Moderated by Tom Seegmiller, Vena’s Vice President of FP&A, the panel gathered SaaS finance leaders to discuss the current financial climate and how finance teams can stay ready for whatever’s ahead. Harjot Ghai, Chief Operating Officer at Delbridge Solutions; Steve Player, Principal Consultant at BPM Partners; and Chris Ortega, Chief Executive Officer at Fresh FP&A, all offered their insights.  The question of the day: How can teams stay agile in the wake of these uncertainties? 💡Key Takeaways:  Agility is key in SaaS, and even more so in these times of change. SaaS organizations need to plan for anything. But they should also understand that their plan will likely go wrong at some point and to be ready when it does. By documenting their assumptions and strategy, and using agile-based rolling forecasts to keep looking ahead, finance teams can stay on top of potential changes and better understand where their assumptions go wrong. This will keep them more agile when those changes happen. Keeping a close eye on critical KPIs and being ready to leverage drivers when changes happen will help finance teams pivot quickly. Technology can add to those efforts, helping them align their data and making collaboration and communication easier. 1. Know That Your Plan Is Going To Be Wrong Planning ahead doesn’t come with a crystal ball. You don’t really know what’s going to happen in the future—so while you can plan for anything, you’re not going to get it perfect. At least that’s what Steve Player, Principal Consultant at BPM Partners, pointed out during the “Lessons from SaaS Leaders” panel. “Everything we do is filled with tons of assumptions. Assumptions about how deep the recession is going to be, what the economy’s going to be, what the supply chain availability’s going to be, are we going to be able to find the people,” Steve said. “It’s really hard to get to clear, concise conclusions when the reality is that anything we conclude is based on a bedrock of a bunch of assumptions that oh, by the way, are likely going to be wrong.”  The question is, to be agile, how do you make the right move when you know you’re going to be wrong? Ensuring your data is accurate and putting in the work to have detailed short-term planning in place are good ways to start. You also want to test your minimum viable product (MVP) and build forecasting and planning around it, added Chris Ortega, Chief Executive Officer at Fresh FP&A.  But it’s also okay knowing you’ll be less than perfect the further you look ahead. “I think too many times, as finance leaders—and I've fallen victim to this—we focus too much more on precision around six, eight, 12-month forecasting. Precision is that 85% to 95% confidence interval that these numbers are going to be right,” Chris said. “Don't spend your time, energy, effort or resources focusing on precision when there's so much change. Be directionally accurate, inform accuracy, develop MVPs to have that agility and get that feedback both externally and internally from the business around your scenarios. That to me is how you win.” 2. Document Your Strategy and Assumptions But even if you end up making assumptions that are wrong in the long run, your strategy may still have merit. That’s why it’s important to document your assumptions and strategy as you go, the panelists said. That way you can better understand where you went wrong.  “Everything you're doing is a major shift to try to change where we’re headed, and so number one, just write that down. What are we assuming?” Steve said. “And then when you write that down, know that you're going to be wrong. That's almost the hardest part. I'm writing it down, but I know there's an extremely high probability I'm going to be wrong. I just don’t know if I’m going to be long or short—and the agility you require for long is different from the agility you need if you’re coming up short.” Once you see how things are lining up, you can start to adjust those assumptions—whether they’re long or short—and determine where you need to pivot. By writing down your assumptions and documenting your strategy, though, you’ll already have a starting point for achieving that. You can also better communicate your evolving plan to the stakeholders involved. 3. Put in Place an Agile-Based Rolling Forecast  The lesson so far is not to get too tethered to your plan, even once you’ve put it into action—but to document everything so that you’re ready to pivot when the market changes. But on top of that, “you need a way to replan and communicate that to everybody to keep everybody moving in the same direction,” Steve said. That starts with an agile-based rolling forecast. Yet a lot of people have “misconceptions” about rolling forecasts, Steve added during the “Lessons from SaaS Leaders” panel.   “With the rolling forecast, a lot of people think, ‘I don't need a budget, I'm just going to do a rolling forecast,’” he said. “The problem is what we ask budgets to do is very different from what a forecast can do. Budgets basically say, ‘Here's our goal,’ and it incentivizes people to reach the goal and to develop action plans to reach the goal. It coordinates and puts that all together and then tracks to see if it’s actually happening. Forecasts should only do one thing—the only thing forecasts should do is tell us what we think is going to happen.” In finance, then, rolling forecasts are as close as you’re going to get to that crystal ball. Your forecast will let you adjust your budget and plan based on new information and changes in the market as they happen.  “To me, there are three questions being answered,” Chris added. “The budget answers, ‘What are we going to do?’ Actuals answer, ‘What did we do?’ And the forecast says, ‘What are we going to do about it?’ That’s literally the three questions that are being answered.”  4. Keep a Close Eye on Your KPIs For Chris, there are just a handful of critical KPIs you need to follow if you want to know how your business is doing. While there will be other metrics you may want to track, these six KPIs will let you “intimately know” your business at any given time—and fuel your forecasting, planning and growth efforts. For Chris, those KPIs are: Leads  Leads to Opportunities Opportunities to Closed Business Closed Business to Project Projects to Revenue Revenue to Revenue Retention “We ingrain and integrate those six KPIs in any decision that we make,” said Chris. “So if a business partner came to me and said, ‘Chris, you need to increase our headcount. We need to hire more salespeople.’ Okay, let's go look at the North Star. How are we tracking leads to opportunities to close more? How is that performing? Are we below the budget? Are we behind it? Are we ahead of our forecasts? Then we make that part of our decision-making process.” Aso critical, especially during times of economic change? Keeping a close eye on your cash KPIs and cash flow forecasting. In fact, that’s even more important today than it was a couple years ago, according to panelist Harjot Ghai, Chief Operating Officer at Delbridge Solutions. “Cash is very important,” he said. ”Obviously interest rates are rising around the world, and especially for SaaS companies, a lot of them are raising equity or they have cash coming in and they grow their company a certain percentage every year—not necessarily being profitable, but they’re growing the company. And having cash in the bank and having cash flow forecasting is very important.”  5. Leverage Drivers To Streamline Your Process Following the right KPIs is just the start, though. In order to know how and when to pivot, you have to be able leverage your business drivers to act quickly and realign your business goals. By tracking your drivers, you can determine the best way to streamline your process throughout your mid- to long-term planning, to help you reach your objectives.  “You can use drivers and populate the different assumptions and … calculate the actual output, the actual expenses and revenues based on those drivers,” Harjot said. “The other way is doing more of a top down, and actually inputting data at a higher level, but then basically seasonalizing the data or pushing the data down to a lower level based on prior actuals, or based on last year’s forecast or last month’s data.” If you’ve planned in enough detail in the short time, and your inputs out of your finance and operations teams are 100% accurate, you’ll have drivers that will help you build momentum through the periods of change. And you’ll be more confident that you aren’t spending too much time on a plan that you’ll eventually need to course correct anyway. 6. Embrace Technology Finally, staying agile and accomplishing all of the above are a lot easier when you have the right technology to help you. The right planning solution will make it easier to keep track of data and monitor your KPIs, allow you to make changes to your plan when you need to and help you determine when your assumptions are wrong.  “You can have a great business process, but you really need a solution to take it to the next level and make it efficient,” Harjot said. But even more than that, in today’s remote and hybrid workforces, technology plays a huge role in helping finance teams work together toward their goals and communicate around their planning needs.    “With the changing environment, a lot of people are not in the office on a daily basis,” Harjot added. “People are working remotely in different locations, they’re working in a hybrid mode, and in order to do this more efficiently and effectively, you really need to implement a solution that allows collaboration. We can't just walk over to somebody's cubicle like we used to and ask a question. We need a solution where we can chat with each other, make comments and collaborate.” Conclusion As an industry, SaaS is used to navigating change and being ready for whatever comes next—prepared to make a positive out of whatever negative comes their way. As the economy continues to shift, those are good attributes to have. But to be ready for those changes, you still need to have the right processes and tools in place. Leading SaaS finance professionals know how to make opportunities out of those challenges. And they know how to best go about it. Now hopefully, these lessons from our SaaS financial leader panelists will help you do the same.   Complete Planning Software for SaaS Want to know more about Vena’s pre-configured planning solution for SaaS organizations?

Companies of various sizes in a myriad of industries that implement computerized accounting and budgeting software require specific features to meet the needs of their organization. Some have integrated supply chain management, MRP, CRM or other software to address requirements unique to their industry or operation.  Some companies have committed additional resources and effort to implement a more “purpose-built” system with greater security and other enterprise-level factors, including multi-entity capability, multi-user and additional features teams cannot easily accomplish with a more basic spreadsheet-based solution. Several solutions are available, including several in the small to medium-size (SMB) market. These systems perform some of the more basic functions. However, most of them fall short of delivering users with essential capabilities and tools and should contain the following must-have features. 💡 Key Takeaways: Exhaustive analysis requires comprehensive data. FP&A solutions in any size organization require several features to ensure better business insights. Top features your budgeting software must have include data importing from multiple institutions, custom report creation and real-time expense tracking. Ensure your budgeting software enables your team to export data to Excel or choose an Excel-based software for budgeting. Mobile and web-based access, customizable alerts and projected balance and cash flow reports are a few more features you should look for in budgeting software. Your budgeting accounting software should offer a simple interface where true data populates effortlessly, making it immediately available following the accounting period close. 8 Must-Have Budgeting Software Features  Budgeting software for small to medium-sized businesses is more advanced than personal budget applications and, for one obvious reason, the scope of use. Exhaustive analysis requires comprehensive data.  It’s something even smaller companies cannot get from limited budgeting software, such as those offered for personal finance. FP&A solutions in any size organization require several features to ensure better business insights.  The forecasting and budgeting software your organization uses must offer specific features for improved business decisions. Here are a few must-have features. 1. Custom Report and Real-Time Tracking Customizable reports enable your team to do everything from checking company assets and investments to comparing spending, cash flow and net worth. Your organization must be able to use these custom and robust reports to check expenses in real time.  Source: Vena and Power BI: Storytelling Like Never Before | Vena (venasolutions.com) 2. Excel Data Exporting Currently, 84% of organizations use Excel, even when their company offers an FP&A solution. Ensure your budgeting software enables your team to export data to Excel or choose an Excel-based software.  Many users just think natively in Excel, the default software for practically every financial institution over the last 20 years. They can sort, filter and pivot data intuitively. Good budgeting software should enable your teams to view and export the data in whatever format best suits the company and its staff. 3. Mobile and Web-Based Access  Companies and individuals alike use budgeting software to ensure insightful cash flow spending and allocations. However, this means users require this information readily available in the palm of their hands.  More than 63% of budgeting software users have at least one budgeting app with 55% using a full-service banking app they use on their smartphone and many more than that use two or more. So, when choosing a solution, make sure it features mobile and web-based access, especially if you use remote or hybrid work models. Source: 4 Ways to Remove Friction from Your Fintech Apps/Solutions (telerik.com) 4. Customizable Alerts Finance professionals must have their budgets available at all times. However, it’s draining to have to check it consistently. Customizable alerts (and push notifications for mobile) help to reduce overspending and improve cash flows. Your budgeting software should also notify you when you’ve hit specific benchmarks established by the organization's decision makers. 5. Improved BI Using the business intelligence your team gains from monitoring the budget strategy throughout the fiscal year allows you to maintain periodic budgeting. This can help you monitor the company's true results from operations to compare with the predefined budget, make budgetary adjustments (reforecast) or adjust operations. 6. Simplicity and Usability Ease of use is more essential than many of the other features that made our list. Budgeting software with the most advanced features may be ineffective if they’re too complicated to use. Not only do you want the data to be accurate and reliable, but your solution must be simple for all users to understand. 7. Straightforward UI The budgeting accounting and ERP software you choose should offer a simple interface where true data populates effortlessly in the budgeting software and is immediately available for the analysis process following the close of the accounting period.  Also, make sure that the solution you choose integrates with the latest finance and budgeting apps for mobile users. We also recommend seeking out tools that offer a straightforward and easy-to-use dashboard and user interface (UI). 8. Ease of Access to Reports Reports must be readily available and with minimal effort, both visual and alphanumeric. All budgeted financial statements—including those with a minimum balance sheet, income statement and statement of cash flows—should be easily accessible. They must also reflect the actual financial statements built by the FP&A accounting software you use for more accurate reporting. Harness the Power of Your Financial Data The features of Vena’s Budgeting Software for FP&A professionals will drive better business decisions using our Complete Planning platform that integrates seamlessly with Excel, Microsoft 365 and Power BI Embedded. Enable faster insights with end-to-end reporting and analytics. Share smart, scalable insights across your entire organization—with powerful and time-saving budgeting and forecasting tools to help you cut budget cycle times and plan with confidence.  Budget Better and Smarter With Vena Is your current budgeting and forecasting software not meeting your organization's FP&A needs?  It's time to give Vena’s Excel-based solution a try.