Gauteng Business News

Send  Share  RSS  Twitter  07 Oct 2010

ACCOUNTING: Accurate Revenue Budgeting is the Key


Recent Gauteng Business News

Businesses should put at least as much effort into planning and controlling their revenue as they do into their costs, says idu managing director Kevin Phillips. “Without an informed forecast of the revenue that is likely to come in, you can’t possibly plan a decent expenditure budget,” he says.

Even worse, says Phillips, is that many companies operate without a clear understanding of their per-unit costs, and thus without a firm basis for pricing or production planning. “The typical sales budgeting module in a financial system allows budgeting by customer or by product, but many organizations have much more complex and subtle needs,” he says. “Without the right support from their financial systems, they do what they can with ever more complex spreadsheets – but they’re not really getting what they need.”

Phillips says the sales budgeting module within idu-Concept, the firm’s flagship budgeting tool, is flexible enough to fulfil a wide range of unique customer requirements – without requiring expensive customisation of the software.

Idu KZN Manager Margie Edwards cites the example of Feltex Automotive, a customer with several different business units producing components such as foam seats, headrests and carpets for the automotive industry. “They plan their yearly production based on a forecast list of models and volumes from their customers,” she says. “Deriving their actual production targets for each product line from the list is a fairly complex exercise. When each business unit was working off its own spreadsheet they ended up under- or over-estimating their production planning.”

Edwards says idu was able to deliver a system that produced accurate, quick and automated volume forecasts. “Our customer and product structures are set up in such a way that we can easily configure them to meet every customer requirement we’ve come across so far,” she says.

One of idu’s most complex sales budgeting implementations was for CHEP, a global company providing pallet and container pooling services. Its products move between several different customers in the same supply chain, and between supply chains. “Their sales budget and their stock management are based on flows,” says Edwards. “They had a very different set of requirements from the typical manufacturer, but once we’d understood their business we found that we could implement the system without any major changes.”

The nature of our business requires us to monitor multiple complex variables in the supply chain,” says Laurie Wright, Manager, Financial Planning and Analysis at CHEP. “We were testing the abilities of Excel to its limits so were impressed with the flexibility of idu-Concept.”

Wright says idu-Concept was implemented extremely fast, requiring a steep learning curve. “The integration of our sales module with our financial budget is the bigger picture and that is working well. The standard reports didn’t meet all our requirements, but the idu approach allows us to be trained to develop our own. We like the fact that idu has encouraged and supported us to take ownership of the system.”

Leading brick manufacturer Corobrik had grown its budgeting requirements to the point where the number of rep and product combinations, at both trade and retail levels, was simply too large for its spreadsheet-based budget process to cope with. There was an additional complication: with a wide variety of product sizes in its catalogue, capacity planning was a challenge. “They convert each actual brick sale to a “brick equivalent” for comparative analysis purposes,” Edwards says. “With an appropriate implementation of our standard sales budgeting module, Corobrik can now simply enter the volumes of each product they are going to sell, and the system makes it easy to budget revenue and costs based on brick equivalents and seasonal trends.”

In addition, the building and construction industry is seasonal, with activity slowing during the traditional December shutdown and rainy periods. idu-Concept is also helping the manufacturer plan its activity across different regions of the country to meet demand fluctuations.

Despite these widely varying needs, Edwards emphasizes, no customisation of idu’s standard product has been necessary. “Customisation is always expensive and dangerous,” she says. “It leaves clients very vulnerable – what if their customisation doesn’t work with the next version of the software? Idu-Concept has been designed so that diverse needs can be met, simply by implementing the standard components in different ways. We haven’t yet encountered a customer need we couldn’t meet.”

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