Using Corporate Performance Management to Maximize Investments of Tax Windfalls
Enactment of the 2018 Tax Cuts and Jobs Act (TCJA) has created a rare situation for many U.S. businesses. It’s time to decide how to use a significant amount of cash savings from lower corporate tax rates and repatriation of profits held overseas. An enviable position, to be sure, but it will demand a rigorous assessment of investment options and their business impact.
Many CFOs say they plan to spend tax windfalls on stock buybacks, investment in new equipment or technology, and hiring additional workers, per a survey conducted by CNBC.1 Other spending targets include debt reduction, acquisitions, geographic expansion, and salary increases or one-time bonuses for existing workers.
Determining the most effective way to leverage this cash requires a detailed understanding of the strategic objectives of the company, and the greatest impact on profitability. The challenge is that most businesses lack the sophisticated processes and technologies needed to model and predict the outcomes of various investment scenarios. In fact, 69% of businesses still use Microsoft Excel as their go-to tool for business planning, per a survey conducted by Financial Executives Research Foundation. 2
While Excel may have served businesses well in the past, it does not arm today’s CFO with the agility required to create, align, and communicate complex enterprise-wide business plans such as those recently created by the passage of TCJA. The result? Disconnected pieces of data, based on varied assumptions and analyses from different parts of an organization. These can include processes for sales, operations, financial planning, and forecasting, along with the inability to support fluid collaboration and communication of planning initiatives across the enterprise.
That’s why restaurant chain P.F. Chang’s China Bistro, has removed Excel from its application-planning menu. In the past, the company circulated hundreds of monthly spreadsheets among managers of its 415 U.S. locations. Recently, the company replaced Excel with a cloud-based planning and performance application that enables real-time collaboration.3 According to company spokespeople, the tool not only allows for faster decision-making, but also improves budgeting and planning outcomes while reducing administrative costs.
CFOs looking to deliver the consolidated information required to understand and measure the future impact of investing an anticipated cash influx—whether through acquisitions, increased worker compensation, stock buybacks, or a new product line—may now turn to an integrated business planning (IBP) strategy that leverages a new breed of solutions known as corporate performance management (CPM).
Initiating an integrated planning strategy
An integrated business planning (IBP) methodology promotes the communication of important forecasting information throughout an organization. It can replace reactive, after-the-fact financial analysis, with proactive decision-making that drives organizational performance and increase knowledge of marketplace dynamics.
Most businesses see the benefits of this approach, but implementation has come with challenges. Like any strategic implementation, an effective IBP program requires executive sponsorship, strong processes, data, and tools to support the effort. Until recently, companies have lacked effective tools to drive an IBP strategy and have continued to rely on Excel for planning and forecasting. Today, corporate performance management (CPM) solutions that can help IBP drive many decisions, including alternative uses of increased cash balance.
A new wave of integrated planning tools
CPM solutions provide businesses and key stakeholders with insight to make informed decisions about how to invest windfall cash, while also developing their strategy, proactively building infrastructure, and maximizing capital. These tools combine integrated business planning, strategic risk management, and financial operation-management processes with powerful data analytics.
This combination helps deliver real-time forecasting models that predict and analyze the ROI of specific investment considerations, as is the case with TCJA driven investments. More importantly, it can help transform current processes. For instance, the integration of CPM and IBP can empower businesses to connect the dots between these potential investments and their anticipated impact on business and financial performance. Companies can also use modeling scenarios to help planners understand the “ripple effect” of investments and factor in all potential impacts to business performance.
Harnessing the power of IBP and CPM for the TCJA
If your company is deciding how to invest tax and repatriation windfalls, consider implementing an IBP strategy and CPM solutions to effectively manage the retained earnings and deploy the capital into the business.
A centralized, cloud-based CPM tool helps CFOs make confident, more-informed decisions by adding a wealth of financial planning and management capabilities. These can include:
- A single platform for all members of an organization (demand planning, human resources, finance, Enterprise Resource Planning (ERP) modules)
- A dynamic environment in which a change in one department’s assumptions impact the entire organization’s outlook
- On-demand flex analysis that includes multi-dimensional views
- Single source of truth that enables collaborative planning across the organization
- Complete automation of consolidation and data-integrity exercises
- Increased efficiencies and job satisfaction as financial teams focus on the use and value of data, rather than creation of datasets and analytical models
- Pay-as-you-go models that shift costs from capital expenditures to operating budgets
- Cloud-based solution to safeguard data from cybersecurity and data-privacy compromises, which can free up IT from implementing and executing rigorous cybersecurity and privacy practices.
CPM and IBP can help with fast, informed decisions for the TCJA windfall. But why stop there?A small-scale adoption of CPM and IBP to address changes brought forth by the recent federal tax reform act can be a great jumping-off point for integration of these powerful financial-planning tools across all business functions. Doing so can create game-changing efficiencies by providing integrated visibility into enterprise-wide planning, and help align financial and nonfinancial business goals. Ultimately, your business will be able to better predict the impact of financial investments, plan for changes in customer needs and markets, and realize reoccurring ROI.
How CohnReznick can help
Establishing an effective transformation roadmap and plan for IBP encompasses a focus on culture, processes, and the right technology solutions unique to an individual company’s industry, size, and pace of transformation. CohnReznick has the experience and approach to create and help you achieve your IBP vision.
We start by working with you to develop a holistic CPM strategy that provides the methodology, framework, benchmarks, and tools needed to implement the solution. Beyond strategy, our team of experienced practitioners help you architect, implement, and manage the right CPM tools. We leverage your existing platforms or deploy the market-leading planning tools.
Successful transformation of business planning will require more than just updated technology. Our team also assesses and updates current business-planning processes and controls, and then integrates those into the CPM solution. We also design custom-use cases that are deployed into the solution.
1CNBC, Global CFO Council Survey, November 2017
2Financial Executives Research Foundation, Inc., 2017 Benchmarking: The Accounting and Finance Function, April 2017
3The Wall Street Journal, Stop Using Excel, Finance Chiefs Tell Staffs, Nov. 29, 2017
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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.