Cash budgeting has attracted increased attention over the past couple of years, as finance teams have raised their expectations for software tools. While spreadsheets provide robust and flexible functionality for budgeting, they lack other critical features that are available in more specialized platforms, such as Balance.These features include real-time account balances, suggestions based on historical patterns, and variance analysis to pinpoint discrepancies between actual and expected cash movements.
Data freshness stands out as a critical variable for creating and managing budgets that accurately represent an organization’s liquidity over the period of the budget. While creating a budget based on a single point in time is preferred compared to no budget at all, it’s still a suboptimal approach compared with the methodology and tools that are readily available to financial managers. These tools, available within Balance, can dynamically update a budget on a regular basis to enhance the freshness and reliability of the budget.
Efficiently capturing all transactions that roll into a budget can be a daunting and time consuming task. Traditionally, this has been accomplished by poring through bank statements, accounting platforms, and payroll systems. A comprehensive forensic analysis of previous spending often takes days, and substantially expands the time and commitment required to complete even a relatively short-term budget. Today, historical inflows and outflows, whether recurring or sporadic (with high variability) can automatically be identified and used to create a reliable and complete budget.
Once the period of a budget has elapsed, a variance analysis can help financial managers diagnose major deviations between expected and actual cash movements. Ideally, the variance analysis will reveal a small set of budgetary line items that did not conform to expectations. The identification of these line items can reveal issues within the business, and can also help create more accurate forecasts for future periods. Modern budgeting and forecasting tools like Balance provide a high level of automation around variance analysis, replacing the error-prone manual process that is usually performed in a complex spreadsheet.
Today’s spreadsheet-driven cash budgeting processes offer tremendous opportunities for automation, which increases the freshness of the data, the completeness of the data, and the ease of fine-tuning. More accurate budgets can be built more quickly and frequently by financial managers, who may then invest time and resources into more substantive and impactful tasks, such as optimizing interest income in today’s high interest rate environment.
