Budgets & Forecasts

The budgeting module in Xero is easy to use and has some great time saving features – like that you can automatically copy data from one period to another, or that you can do so adjusting the amount (either by a percentage or a fixed amount).  Nice!

But there are some areas this could really be improved.  At present a budget can only be set up at a GL level.  Being able to create budgets at a tracking code level (where the sum of the tracking codes then automatically creates the GL budget) would be a great feature.  This would be especially useful for the many Not for Profit clients we work with (although I can think of lots of other clients who would benefit from this also).

It would also be great if a budget could be imported from Excel (hands up who doesn’t use Excel when creating a budget)!  I know Xero have on the drawing board the ability to “round trip” your budget – to export your current budget from Xero to Excel, to edit in Excel and then import back into Xero.

As this is a wish list (so I can wish away) I would also love to see multiple budgets (or forecasts).  Again thinking mainly of not for profits, where we frequently have to create a budget (that needs to be held as is for the whole year), but then also to set up and report against a forecast.

And finally enhancements to the integration with some of the add-on report writers.  At present we use a combination of add on reporting tools for reporting and forecasting to various clients.  Spotlight Reporting is a good tool for both board reporting and forecasting, and  Calxa is great creating budget plus a wide range of management reports.  But both of these are hampered by the Xero API not allowing (as yet) access to the GL by tracking codes, so we can only report / budget / forecast at the GL level, not by tracking code.

Would you make use of any of this?  Do you run a Not for Profit that needs to report at a more detailed level (acquitting funding, or reporting by program)?  Please leave your comments below.

A couple of weeks ago I wrote a blog post on the importance of management reporting, arguing that all owners or managers of small businesses should be demanding high quality information to help understand and run their businesses.

A few days ago I attended my first board meeting for a new client - who happen to be a Not For Profit with an external board but the experience of that meeting is equally applicable to all SMEs.  I presented to the board the standard Management Reports out of Xero, which they loved.  I then went a step further and provided them a few edited highlights using the Spotlight reporting tool.  Just a couple of the charts I put up were as follows.



Nothing all that fancy (though there were a lot more besides this), but far more informative than anything they had ever received previously.

A number of the directors present - who are on the board because of all sorts of great skills they bring to the organisation - would be the first to admit they do not have particularly strong financial skills.  I received a number of comments that they suddenly felt as though they really understood the financial information presented, which they never had before.  This both delighted and horrified me.

Delighted because I had acheived what I set out to (of demistifying their financials) and horrified me because of how vulnerable they had all been for the months and years prior to that day.

It is really important to remember that as a director or officer of a business you have a range of responsibilities that are not lessened just because you don't receive or understand all the information you require.  So if you are not receiving an adequate range of financial reports or you do not fully understand them DEMAND them now, and make time to understand what they mean.

If you are not sure what your obligations as a director are there is a good summary of these on the ASIC website, or talk to a professinoal advisor.  The penalties for getting this wrong can be very tough!

If you think more meaningful reports would help you gain a better understanding of your business please contact Viridity.

A few days ago I had a meeting with a client (he had asked Viridity to consult on what systems might be suitable for his business) and his accountant (who had asked to sit in on the meeting as he felt he had something to add to the discussion).

The client was frustrated by the fact that he couldn’t get the information he needed to run his business from the software he was running (no names, this post is not about software per se).  His concerns were mainly around inventory management – he was frequently experiencing stock outs of one product or another, whilst at the same time his overall stock on hand was far higher than he felt it should have been (a point on which all present agreed). 

The accountant put up lots of arguments for why the software in place was “the right solution” – it was easy to use, it was easy to find staff who were familiar with the software, the software was reliable, it offered a “complete range of really good reports”.  This last point though concerned me: it was clear that the accountant’s view of what comprised a complete range of reports was a Profit & Loss and a Balance Sheet (i.e. everything needed to prepare a tax return).  The idea that the client might want to access additional reports that would help to run his business better seemed not to have occurred to the accountant.  I should stress that I know many accountants who would be as horrified as I was by this view!

This experience made me ponder a question: do SMEs in Australia have the financial information they need to improve the performance of their businesses?  This client felt he did not, but I know of far more businesses that do not seem to worry about their financials.  I know this is a very sweeping assertion, but I wanted to put up a number of observations that suggest to me that this is the case.  I would love to be howled down on this topic!

·         Only a minority of businesses routinely run a profit and loss report, and even fewer run a balance sheet.  If these reports are run, it is as part of the process of preparing / lodging the BAS, rather than for the enlightenment of the business owner / manager.

·         Those businesses that do run reports do not routinely have any basis for measuring whether the figures reported are “good” or “bad”.  For example they don’t compare results to a benchmark of other similar businesses, they don’t measure whether the performance is improving or worsening compared to last year.

·         Very few SMEs routinely prepare budgets (compared to large business where well in excess of 90% of organisations budget annually).  The (partial) exception to this in the SME sector is not for profits.

·         In almost 10 years of consulting to SMEs I can count on the fingers of one hand businesses the businesses that have demanded any form of ratio or other financial analysis.

·         Most SME’s do not keep their accounts up to date – they will for example finalise their data entry and their bank rec 2 or 3 months in arrears, so any reports they do run will be so old as to be more or less useless as a basis for making decisions.

I could add lots of other observations that suggest to me that Australian SMEs do not routinely use financial information to make business decisions to improve the performance of their business, but I would prefer to hear some views from other people.  What are your experiences in this area?  Do you routinely run the sort of reports and analysis I have outlined above?  If not why not?