What is a 3 way budget?

In the good old days of budget setting a Profit and Loss Statement was the main budget document, along with a sales budget and a capital expenditure list.

Accountants then looked at the opening Balance Sheet and manipulated the numbers month by month for 12 months to recognise the cash impact of profit, tax payments, capital expenditure and so forth.  This is a bit of a hit and miss affair with the balancing number generally hidden into Trade Creditors.

A 3 Way Budget approaches this in a much more structured way.  A computer generated model is set up so that any budget transaction will update three reports, the P&L, Balance Sheet, and Cash Flow Statement where applicable.  This model is self balancing and will give users a much higher level of comfort in the reliability of calculations, so more emphasis can be placed on testing the underlying assumptions, such as sales, margins and overheads.

Robust reports

Chris Heinrich does not use off-the-shelf budget models.  Rather, he uses a suite of flexible models that can be tailored to suit any business.  Complex businesses are easily handled, and "what if" scenarios are readily available. Movements in the budget can be traced month by month (for up to 36 months or more), transaction by transaction, so cash flow and balance sheet values can be easily verified.