Is your company outgrowing the capabilities of your current budgeting, planning, and financial reporting tools? If you answered yes, you’re not alone.
This is often the case when companies start out relying on spreadsheets for these critical processes. It also occurs when companies reach the limitations of low-end EPM applications.
The key is to be aware of the symptoms that you have outgrown your current EPM tools and that you are aware of the available alternatives. It also helps to learn from other companies that have made the leap from spreadsheets to cloud-based EPM solutions and to understand the potential benefits your organization can achieve by making that same leap.
Challenges of Managing High Growth
Finance executives and teams in fast-growing companies face unique challenges. The most critical, of course, is managing cash flow and ensuring there’s enough cash on hand to keep the business afloat. Then there’s the challenge of when and where to add headcount to drive and support growth. As the sales channel is being expanded, there’s also the question of how much should be invested in Marketing to provide adequate market awareness and demand generation. The operational challenges are endless.
Finance also faces a number of logistical challenges:
- Providing accurate and timely reporting of financial and operating results to management and external stakeholders
- Developing accurate plans and forecasts that drive resource allocations
- Keeping a steady pulse on the market and the business, and making mid-course corrections
- Developing business models to test “what-if” scenarios and support critical investment decisions
Most, if not all, enterprises start off running their businesses on a basic accounting and payroll system, augmented by spreadsheets for budgeting, reporting, and analysis. This approach usually works for a period of time. But most companies typically outgrow these basic systems as the businesses expand and become more complex – adding more people, opening new offices, and adding more products, services, and customers.
Symptoms That You’ve Outgrown Your Current EPM Tools
Here are some of the symptoms we often hear from customers, indicating that they’ve outgrown their current enterprise performance management (EPM) tools for planning, reporting, and analysis:
- Finance is drowning in spreadsheets.
- 80% of Finance time is spent on data collection, not enough time on analysis.
- Finance is working nights and weekends to close the books.
- Management reporting is not timely, so managers gather data themselves.
- The budgeting process takes too long, takes too much effort, and is outdated.
- Finance and operations plans are out of synch.
- We cannot attract and retain talent due to outdated systems.
If these symptoms sound familiar to you, then it’s likely time to take the next step and invest in EPM applications that are purpose-built to support key management processes – budgeting, forecasting, financial consolidation, reporting, modeling, and analysis.
4 EPM Essentials for Growing Companies
One question customers often ask as they look to make the leap from spreadsheets to EPM applications is – “Where do I start?” I don’t want to get too cute here, but the answer is, “It depends.” It depends on your company and where your immediate pains are. It also depends on the evolution of your company and whether you are public or privately held. But based on my interactions with hundreds of companies over the past 15+ years, I suggest the following as a guide to the EPM essentials for growing companies.
- A streamlined and flexible planning process – This seems to be the pain point most companies reach early in the evolution process. When Finance is spending the majority of the time collecting budget data via spreadsheets and email – and very little time on analysis – it’s time to deploy a purpose-built planning application. These applications make data collection and aggregation less painful and free up Finance staff to spend more time analyzing budgets and understanding the underlying assumptions before they’re finalized.
- Timely and accurate management reporting – This is the second most common pain point that companies hit. Given the limitations of management reporting tools provided within entry-level accounting systems, many organizations use Excel for reporting. But rekeying or copying data into Excel for reporting leads to errors and lots of manual work. And actual vs. budget reporting can also be time-consuming in Excel. Instead, EPM applications typically provide flexible reporting tools that make report creation and maintenance much easier – with the ability to compare actual results vs. budget, forecast, prior year, and other views of performance.
- Rock solid financial reporting with audit trails – The next hurdle I see many companies hit is financial reporting. When delivering financial statements to the board, banks, venture capital investors, or public markets –a high degree of accuracy in the results is essential. Spreadsheet-based financial reporting is time-consuming, error prone, and won’t stand up to either internal or external audit requirements. EPM application suites typically include a financial consolidation module that is purpose-built. These modules are designed to help organizations automate and manage the complexities of consolidating and reporting financial results according to US GAAP, IFRS and other guidelines. And they provide audit trails that enable the tracing of summary balances on the financial statements, back to the source data, and any adjustments that occurred during the process.
- Enterprise modeling to test alternative scenarios – Another essential tool for fast-growing companies is enterprise modeling. When the CFO and CEO are creating the initial revenue and expense models for a company, Excel models can work fine. But when there’s a need for operations analysts in Sales, Marketing, Customer Service, and other functions to develop operational models that have financial implications – disconnected Excel spreadsheets will cause a number of problems. It’s time to consider enterprise modeling tools.
Enterprise modeling tools enable organizations to develop complex financial and operational models that link to each other. For example, changes made to the sales staffing plan by Sales Operations – will update the revenue and expense model in Finance and allow both groups to quickly understand the revenue and expense impacts of hiring new sales reps.
Although EPM solutions in general can help organizations become more agile, cloud-based EPM solutions provide key advantages over on-premises solutions when it comes to business agility. For example, eliminating the need to set up hardware and other infrastructure makes the deployment process much faster. You can get up and running in a matter of weeks or a few months with an initial solution. As you want to turn on additional modules or add users, cloud-based solutions can quickly be scaled to address new requirements. In addition, you only pay for what you need via subscription-based pricing.
Delivering Real-World Results
Host Analytics works with customers in a number of high-growth industries – such as retail, CPG, high technology, biotechnology, pharmaceuticals, and medical devices – who have turned to our cloud-based EPM suite to replace spreadsheets for budgeting, planning, reporting, and modeling. Here’s one example.
Tandem Diabetes Care is a rapidly growing medical device company based in San Diego, California. Tandem’s revenue jumped from $2.5 million in 2012 to $29 million in 2013 to just under $50 million in 2014 with 437 employees and a second innovative product in the pipeline. As a result, the budgeting and forecasting system was showing the strain of this growth. To address both existing needs – and a future that looked like more and more growth – Tandem turned to Host Analytics.
Like many companies, Tandem had used legacy Excel spreadsheet approaches for budgeting and forecasting. What was adequate for a company with $3 million in sales was becoming a headache for a company ten times as big. It needed a solution that was more scalable, less prone to errors, and provided better audit trails and more flexibility to accommodate change. In addition, the Microsoft Dynamics/Great Plains software did not provide the flexibility to manage dynamically changing assumptions within Tandem’s budgeting process– it simply provided a place to put them. In short, Tandem had outgrown spreadsheets and manual processes. They needed more.
With the goal of both resolving current challenges and mitigating future ones, Tandem turned to Host Analytics and deployed the Planning, Reporting, and Analytics modules of our Cloud EPM Suite.
The benefits to Tandem from moving to Host Analytics have been immediate and significant – both in addressing Tandem’s short-term needs and in laying a firm foundation for the future. Critical business processes began to be significantly streamlined. A few details from the present highlight additional results:
- Rather than living in Excel spreadsheets emailed around the office, numbers are now locked down in one central, cloud-based database.
- Everyone knows where the data is, and it’s immediately accessible. The Tandem team can now trace details, determine the sources of assumptions and estimates, and identify the “when,” “where,” and “how” of the numbers.
- There’s a new degree of data integrity and an audit trail on forecast assumptions, unlike in Excel.
- Compared to Excel, Host Analytics provides vastly more supporting detail, richer and more useful notes, and much more information.
Host Analytics provided this fast-growing company with an easy, effective collaborative environment with the flexibility, security, and resources Tandem needed in the present – along with the capabilities and scale it would need in the future.
That’s just one example. To learn more about how other Life Sciences companies are leveraging cloud-based EPM solutions to support their growth, check out this white paper. And to learn how companies in other industries are managing growth, check out our customer videos and case studies.