The Budget Process
Putting together a budget is no small feat. You have painstakingly examined last year’s company financials in detail, updated your sales projections, weeded out and canceled old suppliers, and trued up your employee roster. Step 1 is complete: You now have an operating plan for the following year.
Now, comes the trickier part – getting the company to follow the plan.
Tracking vs Budget
How do you ensure your operators are spending inside the parameters of the budget? How does each department track their progress against their goals? How do your stakeholders evaluate tradeoffs amongst their spending choices – for example, to swap some ad spend for a software purchase?
It is virtually impossible to do any of the preceding by broadly distributing the company-wide plan. To begin with, that plan undoubtedly includes confidential information such as employee salary that is only appropriate for the head of that specific employee’s department. Second of all, since the company plan includes data on every vendor and customer, regardless of whether it applies to any specific operator recipient, the detail becomes noise.
What are Segment P&Ls?
The solution is simple, though the execution usually isn’t: finance needs to create, update, and share segment P&Ls with each stakeholder. A segment P&L contains just the financial information relevant to one particular operator. Often, segment P&Ls revolve around departments so that each of your VPs receives a P&L with 100% of the spend and revenue for their department and none from any others. And certain global expenses, such as rent or Slack or T&E, need to be allocated across several departments, each receiving their portion of the whole.
The typical way we see this happen is that finance goes to their core model spreadsheet and manually assigns customers, costs, and employees to different departments. Then they drop each into its own tab, eventually saving them off as their own files and emailing them around the company. This is massively time-consuming, error-prone, insecure, and requires FP&A to repeat the process month after month to keep the numbers updated. Most companies struggle to do this or simply don’t do it at all.
There has to be a better way.
How to Automate Segment P&Ls
Telemetry has automated the creation and distribution of segment P&Ls. It works by 1) consolidating historical data from your Quickbooks, Xero, or Netsuite accounting system with your HRIS and Excel operating model to build a full picture of actuals and forecast; 2) allowing finance to easily segment the data by employee, COA, vendor, or customer; and then 3) securely sharing the individual plans with specific operators in your company. This way, each stakeholder can see their revenue and spend to date, their current projections going forward, and how far above or below plan they are without the data being polluted by others’ plans.
The result is an exponential increase in transparency and accountability, leading to better operating decisions and higher financial performance. Operators now know precisely where they stand vs their goals and how to pivot to make tradeoffs within the parameters of the budget. It is the source of truth for a much healthier relationship between finance and the rest of the organization.
Check out Telemetry’s free trial and affordable subscription options at telemetry.fi.
