Planning, Budgeting and Forecasting

Profitability and optimized performance pressure from top management are driving CFOs and Finance executives to develop and maintain effective financial planning and analysis skills. It also means going beyond the numbers by bringing the voice of the customer into the spectrum.

To deliver exemplary financial planning and analysis results, you must have clear understanding of the current business financial and conduct (customer and employee perceptions) standing, compare critical KPI metrics to competitors, analyze the industry to identify value factors and trends that can yield profitability and differentiate your company from competitors coupled with the optimization of client satisfaction, and utilizing the most effective budget model for your business.

For example, your business may use a historical budget model coupled with variance analysis, trends analysis and CRM deals tracking (revenue forecasting). However, for more efficient results, you should also analyze risks (create and maintain an annual risk management plan), make savings as an expense (automate savings for your business), collaborate with HR to assess and properly plan for hires, include an emergency reserve budget for unexpected expenses in your budget, and ensure you have a strong inventory management process.

The 3 most important KPIs in finance are: costs, staff productivity and process efficiency. These should be compared to industry and competitors to realize opportunities for improvement. It is also important to be aware of the costs associated with the staff that handles financial planning, budgeting and forecasting. Some measures of performance that should be tracked to assess costs should be cost per invoice, process cycle time, average receivable days (DSO), lead time, percentage cost to perform the function process as a percentage of total finance process cost, et cetera. These measures of performance should also be benchmarked.

Top management must lead the change in the finance department if they seek to yield optimized productivity and profitability. Effective leaders “walk the talk.” They communicate the changes in strategy and company mission daily to employees and encourage critical KPIs to be visual and periodically reported.

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How to stop Freight Charges from eating away at profits

The shipping and delivery cycle time race amongst valuable brands like Amazon and Walmart is a fierce one. Many parcel companies like UPS and FedEx may offer discounted rates for delivering on time but the real question is, “Are they actually delivering on time?”

By implementing effective visual internal controls, your company’s accounts payable team may be able to identify delivery discrepancies per regular parcel audits and if they are found you are not required to pay them.

Other things to look for while auditing would be:

  • Duplicate Invoices: Parcel vendor may generate duplicate invoices with different purchase order numbers, tracking numbers, invoice numbers, et cetera.
  • Discount Rate Verification: Thorough analysis of the invoice is critical for the purpose of ensuring that the proper discount rate was included.
  • Improper Billings: Sometimes there are multiple parties involved and you could be billed for the shipment when your contract specifically stated that “Vendor XX” was responsible for payment. You should integrate freight audit software into your accounts payable process to mitigate this risk.
  • Rate Verification: Essentially, your accounts payable team should be ensuring that the rate base, math, mileage, product classification and weight all match your purchase order and contract agreement, otherwise you are overpaying.
  • Fuel surcharges: It is important that this charge matches what is in your contract and not the current market rate.

Auditing offers the opportunity to gather critical data, such as, shipping spend by origin, destinations, general ledger codes, customers, fuel charges, vendors and carriers. This data can be used to improve your financial planning and analysis, and offer opportunities to streamline processes and realize cost innovations.

Lean Wednesday Tip

 

“To run an efficient accounting department opt for a chart of accounts with less than 180 accounts for improved productivity and financial planning.”

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