Planning and budgeting

Planning approach

Accounting taxonomy as the primary model of the business

AB Report's planning and budgeting process is based on an accounting taxonomy that conceptualises the business in terms of pre-defined business transactions and financial/non-financial measures. This accounting taxonomy serves as the primary model of the business.

Planning as accounting in the future

The use of the accounting taxonomy greatly simplifies the budgeting process. Only future business transactions and metrics flows are planned, and the software automatically calculates the planned financial statements using the established accounting rules. This approach also ensures consistency between actual and planned facts for effective budget/actual reporting.

Driver-based planning and budgeting

AB Report uses the driver-based planning model, recognising that every business relies on key metrics that have a significant impact on its financial performance and shape its production and sales capabilities. These critical metrics vary from industry to industry:

• Distributors may focus on metrics such as number of units sold, sales margin and inventory levels.
• Retailers may prioritise metrics such as sales per square metre.
• Manufacturing companies may emphasise metrics such as capacity utilisation and cost per unit of output.
• A service-oriented company might track metrics such as billable hours, number of employees and maximum prices.

Together, these metrics are known as key business drivers. More examples of metrics are provided in the Tracking non-financial metrics section

Scenarios

Three primary scenarios are commonly used: Plan, Budget and Forecast.

• Plan: A strategic overview that outlines business objectives for the next three to five years, providing a high-level vision without detailed implementation plans.
• Budget: A detailed month-by-month plan that specifies how the strategic goals outlined in the plan will be executed, including specific financial allocations and targets.
• Forecast: Monthly adjustments to the budget based on real-time data, market changes or unforeseen circumstances, allowing for agility and adaptation to the changing business environment.

Budgets are calculated independently for these three scenarios and the budgeting results are available for plan/actual and plan/budget or budget/forecast reporting.

Budget templates

Budget templates provide a flexible framework for defining the structure of budgets, incorporating various accounting taxonomy measures (transactions, KPIs, expenses, cash flow items, etc.) and business dimensions (product line categories, cost centers, etc.).

Template structure

A budget template is systematically organised as a hierarchical list of sections, measures and dimensions, collectively called concepts. For example:

• Sales by product category [section]
  • Number of units sold [table]
    • Product category [axis]
      • Basic tier [dimension member]
      • Premium tier [dimension member]

This structure illustrates a table of sales volumes by category of items sold.

Mapping to accounting taxonomy and business dimensions

The example above serves as an abstract representation of the budget table. To operationalise it for budgeting purposes, mapping to members of the accounting taxonomy and business dimensions is essential:

• Number of units sold => business transaction "sale of services", quantities
• Product Category [axis] => "Item Groups" dimension
• Basic tier [dimension member] => "Basic" group of Items Groups

Calculations

The example above assumes that the number of units sold is entered manually. However, in most practical budget templates, this value is usually calculated from other template measures such as 'number of new customers acquired' and 'marketing results'.

Budget Template Samples

The plan is usually described in a single budget template.

• Wholesale long term plan template
• Template for long term plan for small power plant business
• Template for a long-term plan for a subscription services business

The budget is usually described as a set of budget templates that are filled by different business roles.

• Sales and procurement budget
• General and Administrative expenses budget

To see the relationships between metrics, click on a formula or metric code.

Budget Template Extension

A budget template can be built on top of another template, retaining its structure and adding additional concepts or mappings. This feature is useful, for example, when creating different marketing budgets for different departments while maintaining a common budget structure.

Budget Template Chains

While it's not possible to directly use a measure from one budget template in another, budget measures can be linked to accounts and KPIs. Each budget generates business transactions that impact accounts as defined in the accounting taxonomy. For example, opening balances do not need to be included in a template; a separate opening balance template can be created and the first template linked to the corresponding opening account balance.

Pre-configured Sections

Budget templates can include pre-configured sections for displaying financial statements, sensitivity analyses and calculations for IRR, NPV and payback periods.

Sharing Budget Templates

Similar to Excel, budget templates are designed to be stored in files or AB Report libraries. They can be easily shared, reused, extended and even sold, promoting collaboration and efficiency.

Incorporation of Accounting Transactions

The budget structure includes not only management and financial objectives, but also the detailed steps and procedures to be followed in the accounting process.

Accountants work with management to prepare budgets, incorporating accounting policies into the budget templates. For example, procedures for handling warranty claims or revenue recognition conditions are explicitly outlined. In this way, the budget includes all the nuances that affect the financial results and also acts as a checklist for the necessary period-end accounting procedures to ensure internal and regulatory compliance.

In AB Report, the chatbot can be used to compare actual accounting procedures with planned ones. Accounting transactions described in the budget with estimates and calculation rules can be used in the automatic period-end closing process.

Planning Process

Preparation of plans, budgets and forecasts

The planning process involves the creation of different budgets based on different budget templates for different periods. Separate budgets can be created for specific entities, cost centres, segments, projects or the entire organisation. Budgets are created and stored in a single bufgets repository.

Budget Ledger

AB Report uses the same accounting technology for budgeting as in traditional accounting practices. When the budget is posted, the transactions within the budget are calculated and the corresponding entries are recorded in the budget ledger.

Consolidation Budgets

In accordance with the principles outlined in the section on Budget Template Chains, different budget templates can be linked together to include data from the budget ledger posted by other budgets. This connectivity allows the creation of consolidated budgets that aggregate information from different budgets and perform the necessary calculations. For example, it is possible to create a budget to calculate taxes by entity from the budgets of multiple projects, or to determine funding requirements for the entire organisation.

Reporting and Analysis

The reporting module can be used to analyse the budgeted data in the same way as the actual data. Tools such as custom reports, dashboards, financial statements facilitate this analysis.

In AB Report 1.4 an Excel template is used to fill in the budgets. In AB Report 1.5 the budget completion is moved to the AB Report interface. We will continue to support the use of Excel to complete the budget and loading the completed budget from Excel into AB Report.

Next: Inventory