Fulex is in the business of developing fuel efficiency solutions for the Genset manufacturers. This involves carrying out R&D on the technological and commercial feasibility of the products and, once the feasibility is demonstrated, developing and manufacturing these products. The Company is in a high growth phase with a need for maintaining high level of working capital to sustain the growth, in addition to capital requirement to fund expansion. The objective of the budget exercise was (a) to develop 5 / 10 year plans, Annual Operating Plan or Annual Budgets with monthly / quarterly break-ups at a departmental and segment level (b) Determine sales targets to the sales team, broken by products, geographies, customer segments etc. (c) Determine P&L position and cash/working capital requirements at various levels of sales (d) Determine the amount of capital to be infused to support ongoing operations and expansion plans (e) Planning for manpower needs (f) Expense control, by allotting expense budgets to departments (g) Determining profitability by product, geography, customer segments etc (h) Exploring feasibility of expansion plans with metrics such ROI and IRR (i) Scenario analysis, Sensitivity analysis and “what-if” analysis through modification of the assumptions.
Challenges for MyCFO
Budgeting at Pharmax was a simple ‘spread sheeting’ exercise restricted only to collation of data inputs received from various departments. The variance between budgets and actuals for instance in financial year 13-14 was more than 80%. The variances were reported every month to the HOD’s and the management on a month on month basis for their review and comments.
(a) Arriving at a meeting point between the “top-down” and “bottom-up” approaches (b) Maintaining a balance between “trend-based” and “zero-base” approach (c) Managing iterations and version control (d) Consolidation of inputs received from diverse sources (e) Seeking consensus and “buy-in” across the organization on a common set of goals (f) Changes in assumptions after freezing the budgets (this was handled through quarterly rolling forecasts)
How the client benefitted
The exercise helped the company to formulate its 5 and 10 year plans along with the annual operating plan, department and segment sales and expense targets were formalized, key ratios and trends were fixed and tracked, this allowed the company to benchmark key metrics against industry parameters and allowed the Board and the Management to track actuals on a periodic basis against the budgets.