For years, finance systems have dictated the way trusts operate, but that’s about to change.
With the help of our customers, we have spent the last few years working on how IMP Software can help MATs take a budget-led approach to ensure a more unified, efficient and accurate way to manage financial data. IMP Finance is coming.
We were delighted to have over 500 registrations, including 60 non-customers, for our recent Budget-Led Finance: The Future of MAT Financial Management is Coming webinar, where they discovered the power of budget-led finance and the bold steps we are taking to make it a reality. We are going to change the game by putting budget at the heart of the equation and introduce the first budget-led finance system for the sector, beginning with our budget-driven Purchasing module. This enables any multi-academy trust to systemise its entire requisition to invoice management process – but using the budget data to ensure consistency of coding and real-time tracking of spend versus budgets.
But first, what is budget-led finance? Principally, MAT finance teams are spending time over many weeks and months creating a budget plan that seeks to strike the right balance between investing in their strategic priorities as a trust whilst also being sustainable, so the challenge is to do that more effectively and more efficiently. We all know that’s becoming ever harder. You get into the year, and the plan takes a backseat. Actuals land in a different place to the budget and then you’re battling that gap as you go through the year. We think that’s the wrong way around.
The strategic financial plan should not only set the direction, it should also ensure that this direction stays on track, and ultimately that MATs are following the plan that they set throughout the year. We know budgets change, forecasts change, and plans change. However, by tying the whole budget and financial management piece together, this leads to much better budgets because the budgets are adapting themselves based off the actual performance trusts are seeing as they go through the year.
Budget-driven processes unlock better forecasting, smarter decision-making, and significant time savings. How? Here are five practical examples:
1. Simpler, more consistent coding
The key benefit at the heart of budget-led finance lies around simpler, more consistent coding. So, we all get it, right? We’ve got a beautifully coded budget that is against the right nominal codes, cost centres, departments and funds, and then orders are raised using an extensive list of codes and, in lots of cases, end up in a different place to where the budget lies.
For us, the black-and-white element is it doesn’t really matter what the code is as long as it’s the same code that the budget uses. That makes things much tighter, much more joined up, and, in fact, is going to give you much more clarity as you go through the financial year.
So how are we going to do that? How can we make it much easier for users whilst making it much better for your forecasting and budgeting?
2. Monitor granular spend, by posting against budget items, not summary codes
Well, it’s quite simple. For every transaction posted in IMP Finance, users will not be selecting nominal codes. Instead, they will be picking budget pots, which are the lines in their budget, and budget items for specific items of spend.
They will be worded in a way that makes sense to a budget holder because it’s the pots they know and understand. But then selecting those budget pots will automatically define the associated coding. So that simple process means budget holders are selecting a budget pot they recognise, it’s then inheriting the coding that has been assigned at finance level, and you’ve got that uniformity all the way through to the invoice being posted.
The core concept that underpins budget-led finance is connected budgets and actuals, which in turn provides a much better approach to financial management. As a result, you can forecast with greater precision and granularity – for the areas that matter – and this provides absolute clarity on important spend areas whilst improving next year’s budget.
3. Enhanced budget-holder clarity on available spend, reducing overspending
Budget holders typically want to know how much spend they have available when they’re looking at whether they can buy something or not. They’re not overly bothered about actuals, or what they’ve got committed already during the year, more ‘How much have I got left?’ and ‘Is that enough to buy the thing I want to buy?’
MAT finance teams, as part of their internal control frameworks and overall good financial management practice, want to ensure that budget holders can’t overspend. With existing reports that go to budget holders, these are not always helpful, as they don’t show committed budget spend for those costs that are definite but have no order raised. Often finance teams will spend time at the start of the year raising orders for these budget items so that budget holders know those monies are committed. This creates more workload, and increased risk of error, because often it’s someone’s job to then go through and reconcile outstanding POs to the latest budget and forecast information.
Committed budget rows, which remove those workloads and give the optimal tools for better financial management, are the answer. We can include individual budget rows as committed expenditure without having to raise an order, which gives budget holders a better view of what they’ve got left in their pots to spend, reducing inadvertent overspending.
4. Systemised accruals
We’ve looked at some benefits across the spend and analysis areas, but how can we support better transaction and day-to-day financial management using budget-led finance?
Accruals are things that haven’t happened, so that makes it difficult to work out what should be accrued for. It’s the same with prepayments, what’s in there that should be for next year, so when preparing your journals and schedules there is lots of granularity, lots of spreadsheets, lots of transactions you’re trawling through to bring all of that stuff out. We’ve got your budget, the expectation of what should happen in the year.
So, what we can do is use current budget data to shape our actuals to provide more accurate accounts, removing a lot of that manual work around accruals, and enabling budget-led finance, the connected budgets and actuals, to drive those calls for us. Those actuals that are linked to budget rows enables a simpler approach to accrual accounting, so understanding what’s missing and getting them in there using the system is key.
5. Automated account accruals for delayed pay awards
As well as a system for non-salary accruals, having two calculations for payroll, one based on the pre-pay award calculation and the second based on the post-pay award calculation, is a necessary solution for issues around salary accruals.
We all recognise the problem during the first three months of the year when you’ve got staff that are budgeted to be paid at one rate, but they are still being paid at old rates because pay awards are yet to be processed through payroll.
To help trusts tackle this specific problem, we will hold two calculations for each contract which gives the ability to automate the back-pay accrual for individual employees. This removes the need to apply lots of manual effort doing this work in spreadsheets and transferring to your finance system. The added benefit is that forecasts don’t need manipulating to account for the back-pay missing in your actuals.
Watch back Budget-Led Finance: The Future of MAT Financial Management is Coming.
Register now for our Unveiling IMP Finance! A smarter approach to purchasing and accounting webinar on 6th March (10.30-11.30am).
This blog is written by Will Jordan, Co-founder and CEO, and Warren Porter, Head of Education Strategy, at IMP Software.
