Exact Planning Brings Agile Analytics to FP&A

Using Account Intelligence as an FP&A Resource Multiplier

This is the first in a series of posts that describe how an innovative new software design, Exact Planning, unclogs an FP&A information bottleneck that’s keeping finance professionals from achieving fast, flexible and comprehensive Balance Sheet, P&L and Cash Flow Planning results.

FP&A, the people who create the budget, update the forecast and test scenarios, need better tools for analysis and reporting.

Automating complex accounting calculations

Most managers (i.e. non-accountants) have no idea how much work goes into planning. FP&A calculates and reconciles a lot of data before updating their models. Nothing in Accounting happens in isolation, all account activity impacts one or more other accounts. For example, a Fixed Asset addition impacts Depreciation expense which, in turn, equals the change in Accumulated Depreciation. One activity, three accounts.

FP&A needs to consider the big picture and make sure that all interrelated accounts like depreciation and Accumulated Depreciation tie out. It’s complex work that requires advanced accounting skills. And it pays to be careful because every mistake eventually shows up on a variance report.

It’s complex and time-consuming work. That’s why Budgeting has its own ‘season’. Creating Budget versions for scenario testing and Forecast updates is almost as much work as the budget itself. Where’s the ‘season’ for that?

Most planning still takes place in Excel which is so painfully inefficient that increasing numbers of users are migrating to cloud based EPM/CPM planning software. But EPM/CPM software doesn’t do accounting. They’re designed to eliminate common Excel problems. Adaptive Insights CEO Tom Bogan once said “This is about Excel replacement for corporate planning and the ‘cloudification’ of existing apps”.

The problem for FP&A is that even after eliminating broken links and formula errors there’s still all those calculations and reconciliations needed for keeping within accounting guidelines.

Exact Planning uses proprietary technology for learning the accounting purpose of any account and uses account intelligence to automate accounting outcomes for interrelated account activity.

For Example, let’s look at how Exact Planning calculates Sales related activity from a single entry to Annual Software License Sales to New Customers.

The sale is deferred to the corresponding Balance Sheet account for New Customer Sales as required under FASB ASU 606. Revenue Recognition is calculated using waterfall reports that amortize a portion of each monthly sale over multiple P&L periods. When the new customer sale renews it’s added to existing customer renewals and deferred before being amortized to the P&L. Deferrals and Amortization for any changes to customer churn assumptions are re-calculated for every relevant period.

Implementation, Training and Support are also deferred and amortized to the P&L. New and existing customer Support renewals are calculated, deferred and amortized.

Sales Quotas are used to calculate Commissions for new and renewal sale reps and added to Employee Spending. Payroll Taxes and 401K Company Contributions are calculated automatically.

Exact Planning uses simple, high-level data to calculate and reconcile activity for every GL account and produce fast, comprehensive, flexible and accurate Balance Sheet, P&L and Cash Flow budget, forecast and scenario testing results.

Collaboration

Exact Planning uses account intelligence for separating high and low value activities

Managers in the field work closely with customers, vendors and their team members. They’re a great resource for identifying changes that improve operational efficiency. But EPM/CPM software is complex for non-accountants and collaboration by and between managers in the field is inefficient.

Exact Planning uses account intelligence to separate high value activities like Promotion & Advertising, Cost of Sales and Travel from low value activities like Balance Sheet Other and Overhead. Managers work with accounts in the activities that they control.

And managers work on data that makes sense to them. For example, all they need to know is how much (salary, bonus, commission rate) and when (date of hire or termination) to automatically generate Employee spending results for 12 related General Ledger accounts.

Cash

Separating cash and accrual within an account

Most EPM/CPM solutions include an Indirect Method Cash Flow Report. It’s the one that starts with net income and makes adjustments for working capital and other balance sheet changes.

Exact Planning uses account intelligence to separate cash and accrual activity from individual accounts for creating the industry’s only Direct Method Cash Flow.

Direct Method Cash Flow reporting changes the Cash conversation from vague concepts of net income adjusted by changes in working capital to things like Sales receipts, Annual Software License Payments and Employee Bonuses Payouts.

And Exact Planning calculates cash activity for actual Accounting System results to use for comparative Direct Method Cash Flow results because Accounting Software doesn’t include that kind of functionality. After all, what good are plan numbers if you can’t compare them to real-world results.

That’s a high-level view of how Exact Planning automates accounting processes used for instant and accurate planning results, breaks out high and low value activities and transforms Cash Management.

Look out for more posts to see how Exact Planning brings agility to more FP&A activities.

 

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