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Excel_budgets_part_5

Excel_budgets_part_5 - B UD G ET I NG Part 5 of 6 Using...

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Budgeting. It can be a powerful tool for run- ning and controlling your business, or it can be a com- plete waste of time. No matter how thoughtfully you estimate the inputs, how thoroughly you check and for- mat the budget, or how carefully you link the cells in Excel, your budget will just end up collecting dust if your managers don’t use it! We’re now in the fifth in a series of six articles describing how you can create a detailed, Excel-based Master Budget that you and your managers will really use. In the previous four articles, we created the back- ground budgets and supporting schedules that make up the Master Budget. We change gears in this article. Instead of talking about how to make basic budgets, we now turn our attention to how you can use them to cre- ate a set of Pro Forma Financial Statements. A well- designed set of Pro Forma Financial Statements summarizes the information throughout your budget for managers, bankers, directors, and others making financial decisions regarding your business. Because everyone in the business world understands and uses financial state- ments in their decision making, Pro Forma Financial Statements are the best method you can use to clearly and succinctly summarize and communicate the information contained in your Master Budget. Of course, Pro Forma Financial Statements also pro- vide other important benefits. Along with the Cash Bud- get, this Excel-based Pro Forma Income Statement summarizes the results of all the information needed to interpret variance and cost-volume-profit (CVP) analy- ses, and the Pro Forma Balance Sheet provides the num- bers that you’ll use as the starting point for next year’s budget. Together, the Pro Forma Income Statement, Bal- ance Sheet, and Statement of Cash Flows provide key fig- ures for profitability analysis, forecasting, and basic ratio analysis. 4 6 STRATEGIC FINANCE I June 2010 BUDGETING ILLUSTRATION: MARCEL DUROCHER/WWW.MARCELDUROCHER.COM Using Your Excel-Based Budget toCreate ProForma Financial Statements By Jason Porter and Teresa Stephenson, CMA Part 5 of 6
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Like the background budgets, the Pro Forma Financial Statements can be updated quickly and easily from year to year and from situation to situation if you use an Excel-based budget. A few quick adjustments to the Data Input Sheet will push new assumptions through to the subsidiary budgets and onto these Statements. Perhaps this is the most important benefit of all. When managers and supervisors can see the effect of their decisions and estimates on earnings per share (EPS) and cash flows from operations, they become more careful in their deci- sion making. Of course, in talking to members of the Institute of Management Accountants (IMA®) about the importance of financial statements, we realize we’re “preaching to the choir.” All of us know just how impor- tant the financial statements are to the success of a busi- ness. Our hope is that by creating this Excel-based budget, including the Pro Forma Financial Statements, you can bring the unbelievers into the fold as well.
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