FREE online courses on Refresher on Financial Planning - Chapter 5 - Automate the Process

 

In order for budgeting to be value-added, it must accept revisions quickly and easily. A highly automated budgeting process can help streamline the process for quick and easy updating. As a minimum, budgets should be maintained on spreadsheets. A spreadsheet (such as Excel, Lotus 1-2-3, etc.) can have an input panel for entering variables and automatic generation of budgets within a fully integrated set of spreadsheets. For example, we can use a formula to calculate interest expense as:

 

Interest Rate x (Beginning Long Term Debt + Current Portion of Long Term Debt + External Financing Using Long Term Debt)

 

Spreadsheets also allow us to perform sensitivity analysis. We can simply enter new variables into the input panel and review the impact on our budgets.

 

We can also use more formal software programs for budgeting. The best software programs will give us the option of controlling the level of detail. For example, do we want a cash budget by customer or do we want cash budgets by account or can we simply enter the cash flow data ourselves? It is very important that we have control over the detail since commercial programs sometimes over-analyze transactions and provide way too much detail. This is why many financial planners prefer spreadsheets over commercial programs.