The phrase “It’s budget time” generally produces a groan from everyone who participates in this time consuming, often misunderstood process. I have heard all the arguments on budgets: “It’s just a guessing game,” “How can I possibly know what is going to happen next week let alone 6 months from now,” “I have to add extra expenses because I know management is going to reduce what I submit,” “I don’t understand budgets,” “I don’t have hours to spend coming up with ‘fake’ numbers that are going to be ignored,” and “why do we need a budget if it is not always accurate?”
I want to start with the last question: why do we need a budget if it is not always accurate? A budget should be your road map for the year. What you want your department to achieve and how much you will need to spend to reach that goal. Maybe you know someone in your team needs training on software (like Dynamics 365 Enterprise/AX!) or equipment needs repairs soon before it stops production. These are expenses that you should add to your budget so you can see how it will affect your profits. By planning your spending in advance, you can make sure the timing is not going to push your department or company into a bad cash situation.
Like any road map, there may be detours that occur along the way. This is when the comments about accuracy and guessing are most frequently heard. You cannot know what is going to happen in 6 months, but you can have expectations of what you expect to happen. You know how your business revenue fluctuates based on seasons, weather, customer spending, etc. A budget allows you to set goals based on these patterns. If a new product is going to be introduced you may see a spike in sales or a spike in expenses. A budget allows you to plan your expenses according to your expectations. A budget also helps you determine what your man power needs will be during busy and slow periods so you can prepare for those changes.
Budgets are often based on fixed costs that don’t fluctuate much year over year, like salaries, benefits, and utilities. You can expect a slight increase each year, but for the most part they are static. Other areas are based on production hours or sales and have a formula that determines these values. For instance, raw materials consumed will be based on the number of units built. Typically, this is a calculation that looks at either revenue or production units. These variable expenses change each month but are based on one key factor.
Microsoft Dynamics 365 Enterprise for Finance and Operations (Dynamics Enterprise) allows you to pull historical information into your new budget saving you time on fixed costs. It will also allow you to increase this basis by a percentage so you do not have to alter every line. If you know that your salaries are going to have a 3% increase, you can tell Dynamics Enterprise to increase the basis by 1.03. You can also do this for other fixed expenses with expected increases and decreases (.97 instead of 1.03). Dynamics Enterprise will also let you create an excel template that links to it so formulas can be created in excel to determine the budget, then automatically pull the variable expense amounts back to Dynamics Enterprise to make the budget.
What about when the business plan changes and a new forecast needs to be created? You can pull the budget into a new revised version and make changes. This allows you to keep your original budget and view a revised one based on new data. You can create multiple versions of budgets and forecasts using the same tools as with historical. You can move the updated information to your template and let it recalculate your formulas in Excel and load it to the new budget name. You can tell it to keep the original budget, just increase or decrease it by a percentage for changes in revenues.
Dynamics Enterprise eases the burden of time spent creating and altering budgets. It has automation and workflows to help the areas that are most time consuming, allowing users to focus on the business and not the planning.
Client First is a Microsoft Gold ERP Partner and Cloud Service Provider (CSP) with a team of tenured specialists with core competencies in the implementation and support of Microsoft Dynamics 365 and it's predecessor Dynamics AX. In fact we have over 200 years combined experience in Dynamics AX. To explore all the capabilities of Dynamics 365 and find out how this business solution can help your manufacturing, supply chain, or MRO organization achieve its full potential. Reach out to our Texas or Minnesota location and get more information on how Dynamics 365 Enterprise can transform your business.