Written by Mark Verbeck |
December 2nd, 2013
This time of the year, companies are well into planning for next year. Finance organizations are firing up big efforts on a budgeting process that ultimately doesn’t have enough impact on the way people make decisions each day. Real time access to spend and budget information can change that.
As our chief in-house user, our finance organization is trying to live at the forefront of using all the functionality Coupa has. I also talk a lot with our customers about how they’re using Coupa and we all learn from each other.
Naturally, we talk a lot about managing to budget. I’m a big proponent of using Coupa’s real-time budget information because it brings the budget out of ERP and puts it in front of the business in a way that helps finance move beyond merely reporting after the fact budget violations.
There are a number of factors you can match to the budget easily—headcount, CapEx spend and real estate are a few examples. Most organizations check these spending decisions against the budget before costs are incurred.
In contrast, the whole area of indirect spend--contractors, supplies, miscellaneous MRO materials, furniture, computers--falls into an area of the budget that doesn't have those kinds of controls. Some of this spend might go through a P.O. process, but that P.O. process is generally disconnected from how much there is to spend because there is no visibility to what has been spent or committed to be spent until the books are closed.
When all is said and done, a budget alone is a dull tool to manage spending. Most accounting systems don't produce useful results until Real time spend information lets budget owners see exactly how fast they’re spending relative to plan.they're closed and the accruals wash in and out. In most organizations, that's at least the 15th of the month. In public companies where there's more SEC scrutiny and reporting, they can be as much as 30 or 40 days out reporting results.
That’s too late. If I go tell the marketing department, “Hey, guess what? In the period between 45 and 75 days ago, you spent seven percent more than you were supposed to,” it's hard to course correct.
It just doesn’t work, and I've talked to a number of people who run side spreadsheets so they can understand this. You've heard of double entry bookkeeping? This is triple entry bookkeeping. They’re doing double entry bookkeeping in a general ledger and then another set of shadow books in Excel to understand where they are against budget in a given period.
What we're able to do in Coupa is present budget information at the point of spend. While it's sometimes difficult to marry up many budget categories because of the puts and takes of accruals and amortization, we're focusing on manageable categories and looking at it largely on a cash basis so that it lines up with how normal people (no offense CPAs) think about expenses.
In addition, we don't look at spend against budget as accountants would, when goods are received. We give budget owners visibility into spend at the point of commitment. We don't have the expense yet from an accounting standpoint, but we know when you place the order it will eventually consume the budget.
That’s a crucial distinction. If you can see this information in real-time, then you know if you’d be spending over budget before you commit.
One of our customers actually puts in limits so that if you are at budget, you just can't spend anymore. If you need something, you’re going to have to get by without until the next budget period. Others change the approval process if requisitions put spend over plan.
I love these use cases because they show how Coupa can be a tool for budget owners to take more control and be successful. Empowering budget owners in this way changes the role of finance. In many organizations, whether they like it or not the finance department ends up being the police department pulling people over and writing tickets.
If you want to be strategic and make a difference, you need to get out of that position and enable people to make better decisions. Having real-time spend information is like having those roadside speed indicators that tell you how fast you’re going. If you’re going too fast, you can adjust and go the right speed rather than getting a ticket.
At Coupa, we don't have hard cut off limits, but I have a dashboard and I can see how fast everyone is driving. If they’re not driving (or spending) too fast, I assume that they're in good shape.
If they’re not driving the right speed, there's usually a good reason for it, and it's also a warning sign that we have some business requirement that requires us to spend beyond the budget. The difference is, I know about it now instead of after the fact, and I'm engaged in the conversation.
CFOs can't control the competition, the economy or world events, but for the next 90 days we should be able to tell where we're going to come in spend-wise. With real time spend information, the budget becomes a tool I can use to do that, and my team can spend its time on more enjoyable and strategic activities than playing cop.