Plansmith Blog

Stress-Free Budget Building

Posted by Sue West on 8/10/22 10:01 AM

Banking is relentless in its daily demand for your time and attention to detail. We know this firsthand, as most of us are former bankers and have been in your shoes.

Stresses around day-to-day responsibilities will never be eliminated, but those associated with your budgeting can be. This is why we built Compass and why you chose us as your software provider.

Software allows us to take complex processes and make them manageable. By using financial planning models, we are able to recreate the corporate environment so we can prepare for the future and manage during times of adversity.

Occasionally, panic sets in when we think about a model and all of its moving parts. Well - stop! I’m going to outline for you just how stress-free preparing your budget this year can be. Here’s how to focus on the “important stuff” and work in the detail, keeping your budgeting process manageable.

  • Set the Big Picture

You have automated edit functionality for planning growth – use it!

Start with Total Assets, click on Change under the EOM Balance then Quick Model for annual growth and enter zero (0), then click OK. This will straight-line your balances from your last actual month forward through all years for all assets. It’s a great place to start.

  • Focus on Major Category Totals

Using the same technique, work through your assets, focusing on only the major asset categories you expect to grow. These most likely are Investments and Loans. Again, stay high level and using only Total Securities and Total Loans, enter the percentage of growth you would like the bank to achieve. For example, I may expect Total Securities to increase by 5% and Total Loans by 10%.

  • Refine Sub-Folders

Using the same technique, work through the sub-folders within your Investments and Loans. In our example, we set Investments at 5% and Loans at 10%; however, we expect that our Agencies will be a bit higher at 10%, Munis a bit lower at 3%, Commercial RE up as high as 15%, and Consumer Loans lower at 5%.

  • Repeat Steps 1-4 for Liabilities

In a matter of minutes, you have prepared a decent starting budget. Remember, your rate forecast has been maintained throughout the year, so the Offering Rates established for your product lines should be current and up-to-date. In the event you pursue a special promotion or new product, then the offering rates should be reviewed to ensure they coincide with attracting new business.

So, what about Non-Interest Income and Non-Interest Expense? Here there are many ways to prepare this segment of the budget and can vary drastically between organizations. Some clients have very specific balances that their accounting department has supplied, while others simply estimate a percentage of growth for the upcoming 1-3 years. Here are my suggestions:

  • Growth over last year

One of the fastest ways to enter budget estimates for OI/OE is to use the Compass automated growth feature, New Month from Previous Month. If you haven’t used this before, you’re going to love it!

As we did earlier, start with total Non-Interest Income and total Non-Interest Expense.

  1. Click on the box below the Balance column, it may be labeled Manual, Quick, or Fee, depending on the model feature used last.
  2. Select Quick Edit option New Month from Previous Month.
  3. Highlight all time periods.
  4. Right Click and select Quick Edit.
  5. Enter the % change over last year.
  6. Click on Save As, and give this model a name so it becomes part of your model library.

Using this feature, you can budget based on the seasonal pattern of the previous year. Remember, we are building our big-picture here. Perhaps you want different percentages per year. No problem. You can make the model as detailed as you desire.

  • Using specific data from external sources

If you are given specific data from another department and it’s in a spreadsheet, you may first need to use the transpose option in Excel to convert the data from a horizontal row to a vertical column. This data can then be copied and pasted directly into Compass, year by year.

  • Keep the status quo

Within Compass, you may highlight data, right click, and copy and paste data from one year to the next.

As you can see, gone are the days of manually entering each number. Instead, we ‘Click’ and utilize the data already contained in our Compass to build a budget. By using financial modeling, you are freed up to concentrate on strategies for growth and focus your energies on testing what-ifs and measuring their impact on your bottom line. These techniques are also great to use within your planning meetings. Concentrate on the impact of ideas and trust that Compass will calculate the details.

Don’t be afraid to experiment with these techniques this year. Simply make a copy of your plan and Save to a New Name before you begin. If you would like more information on any of these operations, please refer to your Compass Online User’s Manual located under the Help icon within Compass. If you have not used the User’s Manual, you’re missing out! There you will find detailed instructions and visual examples to help you choose the best tools at hand for the job.  Not a reader, no worries, we have a host of on-line tutorials to guide you through streamlining your budget process. Take a look, give them a try, and call if you need anything further.

Here's to hoping you all have a healthy and profitable year ahead.

SueSue West




Topics: budgeting

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