Introduction: Planning can be complex, but Reach Reporting’s 3-way planning tool simplifies the process by automating the integration of your Profit & Loss (P&L), Balance Sheet, and Cash Flow Statement. This guide will walk you through how to use this powerful tool for seamless budgeting, forecasting, and scenario planning.
Step 1: Understanding the 3-Way Integration
Reach Reporting’s 3-way planning tool uses a familiar spreadsheet environment to provide a comprehensive business projection. Here's how it works:
- P&L to Balance Sheet: Income and expenses from the P&L automatically reflect as Earnings on the Balance Sheet. They also impact Balance Sheet accounts like Accounts Receivable, Accounts Payable and Inventory.
- Balance Sheet to Cash Flow: Based on the timing set for your payments and collections, income and expenses planned on the P&L will also reflect on the Cash Flow Statement as cash in or out for a specific month. Other changes such as investments in assets or new liabilities will also show up automatically on the Cash Flow, providing insights into growth strategies.
- All this happens automatically, with no need for complicated formulas.
Any adjustments, such as increasing payroll costs, taking a loan, or acquiring new assets, will flow through the Balance Sheet and Cash Flow Statement, allowing you to see the effect on your business’s liquidity and financial position instantly.
Step 2: Creating Your First Budget
Now that you understand the tool’s automation, let’s create your first budget and forecast:
- Choose Budget Scope: You can decide to integrate P&L, Balance Sheet, and Cash Flow or only budget for the P&L.
- Automate Calculations: Select a Bank Account to serve as the balancing account for all transactions. This account will record money in and out resulting from all planning assumptions made.
- Pre-Fill Data or Start Fresh: You can choose to start with pre-filled data, apply a growth rate across the P&L, or start from scratch.
- Check for Missing Data: Reach Reporting automatically checks for any deleted or missing accounts to keep your Balance Sheet in balance.
Step 3: Customizing Your Budget
The tool provides various methods for customizing your budgeting process:
- Driver-Based Row Settings: Adjust any account projection using drivers like previous period values, growth rates, or a trailing average.
- Target-Based Adjustments: If you have specific spending caps or sales targets, use our annual target driver/ bucket budget for better control.
- Monthly Allocation: Apply last year’s seasonality or evenly distribute values across months, with custom percentage adjustments as needed.
- Forecasting Algorithms: Use forecasting algorithms like linear forecast or period-over-period growth rate to project based on historical data.
- Data Sheet Drivers: Use the data sheet to create additional calculations and link back to the P&L and Balance Sheet. Pull in additional planning data that can be collaborated on by connecting a Google Sheet or Excel file.
Step 4: Configuring Balance Sheet Automation
You can also customize Balance Sheet entries that automatically reflect on your cash projections:
- AR, AP, and Inventory: Data from AR, AP, and inventory calculations automatically flow between P&L and Balance Sheet based on payment/ turnover days, and corresponding income and expense accounts mapped. If you have a 60 days payment terms for bills, and 50% of cash payments, then half of the monthly expenses mapped will be shown as cash out immediately, and the other half will remain in AP balance for two months.
Step 5: Automating Cash Projections
Reach Reporting automates your liquidity projections:
- Cash Flow & Ending Cash Balance: Since the Cash Flow Statement is fully automated, changes made on P&L and Balance Sheet automatically reflect on monthly cash flow and cash balance projections, updating as you adjust your drivers.
Step 6: Scenario Planning and Customization
Reach Reporting allows for customized approach and scenario planning:
- Create Scenarios: Develop best and worst-case scenarios by adjusting factors like inflation expectations or customer churn rates. Incorporate non-financial data enabling a more comprehensive analysis.
- Manual Overrides: You can manually adjust any cell, just like in a spreadsheet, to override automated data when needed.
- Comment Tracking: Add comments to document your assumptions, helping teams understand the rationale behind planning decisions.
- Scenario Reporting: Save different budget versions and use them for presentations to strategize around the best fit for your business.
Step 7: Finalizing and Using Your Budget
Once you’ve modeled and fine-tuned your budget:
- Set as Default: After approval, make the final budget your default for seamless integration into reports and dashboards.
- Link to Reports: Use the finalized budget in template reports and dashboards for consistent data-driven insights and variance analysis.
- Collaborate: Share budgets and forecasts using the Client Portal. Keep your team members in the loop with the status tag set for your projections.
- Multi-Year Projections: Easily group annual budgets, creating a comprehensive overview for long-term financial planning.
Conclusion:
With Reach Reporting’s 3-way planning tool, you can drastically reduce planning time while ensuring accuracy and clarity. This tool’s automation and flexibility empower you to create, tweak, and strategize your budgets with ease.
For further questions or a detailed demo, don’t hesitate to contact us via chat!