In today's fast-paced business world, companies are always looking for ways to improve their financial processes and gain better insights into their operations. One tool that is making a big difference is NetSuite's dynamic allocation schedule, especially when it comes to expense allocation. This feature offers a flexible and automated way to distribute costs across different parts of a business, which is helpful for organizations of all sizes. Why Expense Allocation Matters?

Expense Allocation allows organizations to spread shared or indirect costs to the right cost centers, giving a more accurate picture of how each part of the business is performing financially. What are Dynamic Allocation Schedules in NetSuite?

Dynamic allocation schedules in NetSuite are smart tools that automatically distribute expenses and revenue across different parts of an organization. These parts could be departments, locations, classes, or any other divisions that make sense for your company. The "dynamic" aspect means these schedules adapt to changes in your business in real-time, ensuring allocations always reflect the most current information. This is particularly useful for advanced costing methods like activity-based costing and usage-based costing.

Key areas where dynamic allocation can be applied is:

1)  Service Usage Allocation: Allocate costs for subscription services based on the number of users or the level of usage. For example, a company subscribes to a cloud storage service costing 10,000 euros annually and the cost is allocated based on the number of users in each department.

2)  Overhead Allocation: Distribute manufacturing and administrative overhead costs across products, departments, or projects. For example, A manufacturing company has total overhead costs of 500,000 euros and these costs need to be allocated to products based on machine and labor hours used.

3)   Project Actuals: Allocate project-related expenses to specific projects or phases of projects, ensuring accurate project costing and profitability analysis. For example, a NetSuite implementation project has total expenses of 50,000 euros and these expenses need to be allocated to different phases of the project.

4)   Storage Cost: allocating storage costs of the 3PL warehouse by number of fulfillment against the brand (class) captured on items. Monthly incurring by the organization is 2,000 euros and this expense should be allocated to the brands based on the monthly number of picks per item.

Let's take the last example and dive deeper into the setup of NetSuite for this feature.

 

The first step would be to create a statistical accounts. Statistical accounts are used to track non-monetary data and can be updated either manually via a Statistical Journal Entry or automatically via a statistical schedule using saved searches to auto-update balances.

 

Next, we will create a allocation schedule. The expense allocation schedule is controlled by two subtabs:

 

1)  Source tab: this tab is to define from which account the expense should be allocated.

Now for our example, the organization is going to allocate the storage cost against the fulfillment location. For that, the source tab is set to account ‘Storage expenses’.

 

2)  Destination tab: In this tab, we can define the accounts and segments like departments, class and locations to which expenses should be allocated. For our example, we have created a line for each location to allocate expenses accordingly. The allocation weights are determined using statistical accounts in NetSuite. Based on these weights, the expenses from the source account will be allocated to the destination accounts.

 

 

 

Creating Allocation Journals

 

When a vendor bill or journal entry is created against the account, the expense is recorded in a designated source account. Once the expense is recorded in the source account, based on the schedule date the user can create a journal entry. The system automatically distributes the expense according to the rules defined, ensuring that each destination center or account receives the appropriate share.

 

Your reminders portlet will show you how many allocation schedules are due to be run. This is based on the next date mentioned in the schedule and the number remaining for the schedule.

When you click on the reminder portlet, a list of pending allocation schedules will be displayed. Select the schedule you want to run. Click on "Enter" (as shown in the image), and a journal entry will be created for the selected schedule. If the remaining count is 0, the pending item will be removed from the list.

 

Review the History tab on the Allocation Schedule (as shown in the image) to review a list of all allocation journals generated from this schedule, with links to the transactions and detail.

 

In this example you could see, a journal entry was created to allocate the expense of 2000 euros against the cost center based on the weights (as shown in the image). For example, Amersfoot center will have 909.09 euros (2000*0.4545) allocated against the source account expense amount.

 

Benefits of Using Dynamic Allocation Schedules

 

 

Challenges

While dynamic allocation schedules offer many benefits, implementing them effectively requires careful planning and ongoing management:

1)  Initial Setup Can Be Complex: Configuring allocation schedules can be complicated, requiring a deep understanding of both your organization's financial structure and how NetSuite works. The NetSuite Administrator must understand the specific date on which the schedule must run because once a date is set, it cannot be changed. Additionally, for a One World account, if mapping is required for all subsidiaries, they will need to create separate schedules for each subsidiary.

2)  Managing Change: Introducing new allocation methods may require training your team and adjusting existing processes.

3)  Regular Reviews are Necessary: You should review your allocation methods and schedules periodically to ensure they still reflect your organization's current reality.

 

Conclusion

NetSuite's dynamic allocation schedules, especially when used for expense allocation, offers a powerful tool for organizations looking to improve their financial management. By automating complex allocations, businesses can achieve greater accuracy in their financial reporting, save valuable time and resources, and gain deeper insights into their operations.

The benefits of improved decision-making, enhanced compliance, and increased flexibility make dynamic allocation schedules a valuable asset for organizations of all sizes. As businesses navigate an increasingly complex financial landscape, tools like these become not just beneficial, but essential for maintaining a competitive edge and achieving financial clarity.

While implementing dynamic allocation schedules does require careful planning and ongoing management, the long-term benefits in terms of efficiency, accuracy, and insight far outweigh the initial investment. For organizations looking to take their financial management to the next level, NetSuite's dynamic allocation schedules offer a compelling solution that can drive significant improvements across the board.

By embracing this powerful feature, businesses can streamline their financial processes, gain a clearer understanding of their true costs and profitability, and make more informed decisions to drive growth and success.