The document discusses the evolution of budgeting from focusing on historical data to emphasizing future planning and strategic alignment. It highlights the importance of participatory budgeting, aligning budgets with strategy, and using key metrics for successful forecasting and performance evaluation. Major challenges in budgeting are identified, along with critical success factors and the significance of the balanced scorecard in measuring intangible assets and enhancing strategy execution.

1. BUDGETS & FORECASTS
MK Reesor, CPA

2. BUDGETS & FORECASTS
 “All we really know is the past, but all that
really matters is the future”
 The past, reflected through historical accounting, is a must have for an
organization. However, the past has become less and less important as
part of the budgeting process. Benchmarking and development of key
metrics have changed the budgeting process and the development
strategic plans for the future.
 Budgeting is about planning…first and foremost.
MK Reesor, CPA

3. BUDGETS & FORECASTS
 However you choose
to develop your budget
forecasts, one thing is
certain, you will be
wrong!
 “People with goals succeed,
because they know where they
are going.”
–Earl Nightingate
MK Reesor, CPA

4. BUDGETS & FORECASTS
 Why Budget?
 Allocation of scarce resources.
 Determine business needs…financing, personnel, equipment.
 Plan operations.
 Evaluate performance.
MK Reesor, CPA

5. BUDGETS & FORECASTS
 The Circle of Life
 Goals….Plans…Action…
Measurement…Adjustment.
MK Reesor, CPA

6. BUDGETS & FORECASTS
 Why Budgeting Fails…
 1. Competing Reasons for Budgeting
(Performance Measurement/Compensation
vs. Strategic Planning…)
 2. Unrealistic Expectations.
 3. Improper Communication.
 4. Improper Metrics.
 5. Sandbagging.
 6. Fiefdoms.
 7. Cost Allocations without Authority.
 8. Time. Budgeting should be a continuous
process throughout the year.
 9. When budgeting is thought of as only an
Excel spreadsheet exercise.
MK Reesor, CPA

7. BUDGETS & FORECASTS
 Budgeting Success
 Participatory Budgeting
 Align Budgets with Strategy
 Develop Responsibility Centers
 Use of Metrics
 Know What Drives Costs
 Know Cost Structure…Particularly Fixed Costs
 How Critical is Payroll?
 What Can You Control?
 Can You Outsource (Conversion of Fixed to Variable)
 Budgeting with a “Measurement of Output”.
MK Reesor, CPA

8. BUDGETS & FORECASTS
 Revenue Forecasting
 What Drives Revenue?
 More Customers
 More Revenue from Existing
Customers
 New Products
 New Markets
 External Changes
MK Reesor, CPA

9. BUDGETS & FORECASTS
 Cash Forecasting
 Cash is King
 After Income Statement, Develop
Balance Sheet Assumptions
 Project Cash at Least Monthly
 Operationally…a Rolling 13 Week
Cash Flow Forecast with a Backfill
of Actual Receipts & Disbursements
 Will a Line be Available?
 What is Your Margin of Error (10%
error in Revenue may not be a big
deal…but in Cash it might be
deadly)
MK Reesor, CPA

10. BUDGETS & FORECASTS
 Balanced Scorecard
 Developed by Robert Kaplan and
David Norton
 Felt Organizations Focused too
Heavily on “Financial Measures”
 Historical Reporting Techniques No
Longer Appropriate in the
“Information Age”
 Historical Results are Lagging
Indicators Lacking Predictive Power
 Benefits…Translate Strategy,
Quickly Anticipate Financial Results,
Align Employee Action, Create
Value with Intellectual Assets.
MK Reesor, CPA

11. BUDGETS & FORECASTS
 Balanced Scorecard
 The Root Cause of Dissatisfaction
is Over Reliance on Financial
Measures
 Intangible Assets are the Key to
Producing Value in Today’s
Economy….Employee Knowledge,
Customer & Supplier Relationships,
Innovative Business Processes
 Balances Financial Measures with
the Drivers of Economic Success to
Enhance Strategy Execution
MK Reesor, CPA

12. BUDGETS & FORECASTS
 Critical Success Factors
 In order to tie a budget to a strategy, the
company and all of its employees must
understand the company’s sustainable
competitive advantage and the things it
must do to maintain and improve on its
advantage…the company’s critical success
factors (CSFs). These are determined far
in advance of the budgeting process.
MK Reesor, CPA

13. BUDGETS & FORECASTS
 Key Performance Indicators
 Metrics that measure CSFs are Key Performance
Indicators (KPIs)
 All Great Companies Measure “Profit in Ratio to
Something”
MK Reesor, CPA

14. BUDGETS & FORECASTS
 Senior Financial Executives Look Forward
 Plan to Execute Strategy
 Allocate Scarce Resources
 Communicate and Motivate.
 Understand Revenue and Cost Relationships
 Identify CSF and KPI
 Benchmarking
 Identify, Quantify, and Mitigate Risk
 The Past is an Imperfect Predictor of the Future
 Prepare Contingency Plans
 Embrace the Budgeting Process
MK Reesor, CPA