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Time spent forecasting

At a webinar that I gave yesterday called "Excel Techniques for Forecasting," one of the attendees asked me: "How much time per month does an average small to mid-size company spend on forecasting and budget to actual reporting?" Would love your feedback.


Topic Expert
Alan Hart
Title: Consultant
Company: Pacific Shine Group
(Consultant, Pacific Shine Group) |

My experience from working with small and medium size companies in a variety of industries shows that the majority of companies spend little or no time at all on budgeting, reforecasting and reporting actuals vs. budget numbers, other than the annual budget preparation that is usually approved prior to the start of a new fiscal year but is never really relied on during the new year.

This is primarily due to the fact that annual budgets are still completed in most of these companies using spreadsheets which were never designed to perform these tasks for many reasons that finance executives and professionals are beginning to discover.

In order to make the planning, budgeting and analysis more meaningful and actually useful to management, these companies must make the transition from these spreadsheets to a purpose designed application, one that allows them to build a budget using already built-in business logic that they can adapt to their industry and type of business, and built-in accounting rules that will translate the finished budget and all its versions and re-forecasting activities into a set of financial statements, including a complete and accurate Balance Sheet and a Statement of Cash Flows, making the budget driven financial statements an extension of their actual accounting system into future, budget periods.

When companies transition to this type of an environment, more time will be spent on analysis and better and timelier decisions can be made by management.

Any other method, especially one that relies on spreadsheets or on user supplied formulas, functions and links will be incomplete and inaccurate and will discourage its users from continually using it throughout the year.

Topic Expert
David Hughes
Title: Executive VP of Operations
Company: On Target Performance Group
(Executive VP of Operations, On Target Performance Group) |

I agree with Alan. I also have a lot of experience with small and medium size companies and many of them do not see the value in spending very much time on forecasting. My current client only looks at one thing, comparison to last year, and forecasts strictly on that comparison. They do not even do a budget...actually they consider their budget to be their previous year.

Topic Expert
Wayne Spivak
Title: President & CFO
LinkedIn Profile
(President & CFO, |

Here's a devil's advocate question concerning that one client.

What added benefit would they gain from creating a new budget instead of using last year's actual as the budget?

Is the ROI of the time and effort spent worth that effort?

Dorothy Barth
Title: Finance Specialist
Company: Casa de los Niños
(Finance Specialist, Casa de los Niños) |

Hopefully your results are better every year. If you use prior year as your forecast, that's one way to make sure you always make budget.

Alex Ladd
Title: Senior Partner
Company: MindStream Analytics
(Senior Partner, MindStream Analytics) |

We are a small company and spend a significant amount of time budgeting and forecasting. However, that is the business we are in so that may be part of the reason we do it. Also, I've worked with a number of companies over the years and some very small ones still spend a significant time budgeting and forecasting. In my opinion the ROI on the time spent forecasting is high, while the budget side of the equation is less valuable. Budget's are good for some things, like forecasting margins based on known changes to the cost of good sold or cost of services provided. It allows for a view of any potential changes to the gross margin. However, the additional SG&A items are probably much less value add time for a smaller company. On the other hand, the forecasts are very important to manage cash flow and short term profitability.

Ben Murray
Title: Vice President and CFO
Company: Cartegraph
(Vice President and CFO, Cartegraph) |

There are really two questions here. How often should I forecast and how much time should be spent on the forecast? Somewhat dependent on each other but not completely.

How often depends on how fast your business changes. This could mean monthly updates, quarterly, etc.

How much time spent on forecasting depends on the complexity of your business and how efficient you are with Excel modeling.

As an SMB CFO, I use spreadsheets and have developed a detailed financial statement model. For me, the financial cost and time cost of a budgeting application is too great. At larger organizations, a budgeting application is a must-have and I have implemented them in the past to great success.

John Bish
Title: CFO
Company: Argyle Solutions Ltd
(CFO, Argyle Solutions Ltd) |

I have always found that using a thirteen week moving average as a comparative (with prior year) on volumes and values down to gross margin to be effective. If growth is not happening then this is a clear reality check on getting management to focus back on costs.

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