Advisor insights from the field

Archive for the ‘Financial Management’ Category

Forecasting is a Learned Skill

Wednesday, March 7th, 2012 by Troy Schrock

Forecasting is a learned skill, and as such, it can be taught and improved over time.  It also will never be perfect.  Yet, I often see CEOs and executives giving the financial staff a terrible time when actual results differ from the forecast.  I have also seen many financial personnel terrified to provide a forecast to the executive team because it is built on assumptions rather than “facts.”  By nature, financial personnel tend to be more averse to making mistakes than others.  They want their numbers to be right, but forecasts are never “right” in precisely matching actual results.  No one can absolutely predict the future.  A forecast can only provide a directional view based on the best knowledge available.

Forecasting is not limited to financial numbers.  Every discipline has some kind of key activity or metric to forecast, so CEOs, CFOs, CIOs, COOs, and any other kind of business leader ought to be able to understand the uncertainty and apprehension involved in forecasting.

You can only become excellent at forecasting by working on it.  Mistakes will be made.  Through practice, you will gain a better understanding of the drivers of the key activities which are drivers for the financial results.  Not only will the accuracy of your forecasts improve over time, but you will also gain a deeper understanding of your business (which is the greatest value of forecasting).

For more insight on financial forecasting, consider reading Before You Hire a CFO

Share/Save

3 Financial Management Objectives for CFOs

Saturday, October 8th, 2011 by Troy Schrock

3 Financial Management Objectives for CFOs

3 objectives for the CFOs of entrepreneurial and mid-market companies:

  1. Integrity in Financial Reporting: Implement the proper personnel and processes for reliable financial data.  Financial reporting is historical; it tells “what happened.” 
  2. Sound Financial Analysis and Synthesis: With solid financial reporting disciplines in place, CFOs can focus on what it means.  But they must not stop there.  CFOs also need to synthesize the information and help the organization’s decision-makers think about the future.  How do the financial results affect strategic and operating decisions, and vice versa.
  3. Tight Financial Management (Budget and Cost Control):  The budget (or the financial forecast, which is more flexible and preferred by some) paints the future financial picture for the organization’s leaders.  First, it connects current decisions to expected results.  Then, actual results can be measured and compared to expectations.  This calibrates the assumptions of the decision makers.  Because it requires an understanding of the key value drivers of the business, this discipline also enables CFOs to identify specific areas of cost control that need addressed (which can be anything from a line item to an entire process).

The CFO must ensure that the first objective is achieved, but second and third objectives are where CFOs add the greatest value to a business.  Therefore, those are the objectives on which he should focus his time.

Cash Flow Management Help for Entrepreneurs

Monday, January 31st, 2011 by Troy Schrock

We recently got a nice plug from The Shoestring MBA regarding our recently launched online course about cash flow management, entitled “Cash Rules for Entrepreneurs.”  With permission from author Bill McGuinness, we adapted some of his material from his book Cash Rules, added some practical tips and tools from our experience as ActionCFO advisors, and put together an online tool that we think will be very useful to business owners and CEOs of small and midsize companies. 

You can access this tool at www.cashrulesforentrepreneurs.com.  For a very reasonable fee, you get lifetime access to an audiovisual presentation, podcast, booklet, and helpful review sheets.  If you’ve been looking for a crash course (or just a quick review) of fundamental financial management concepts for your business, I think you will find great value in this tool.

Please be free with your feedback on it.  As we hear back from people, we can continue to improve the tool in the future.

Cash Flow Management Critical to Surviving Recovery

Wednesday, October 20th, 2010 by Jim Walden

I have noticed a recent increase in entrepreneurs with start-up ideas and financers who are willing to support them.  This fits a pattern I have noticed for a long time: when the pain of a recession peaks, new ideas for solving existing consumer and business problems begin to take root.  Although this means new competition for established businesses and products, it’s also an encouraging sign for the future. 

When advising startups, I stress the importance of making sure the new venture is a business and not just an idea or product.   The three elements of a business are often described as the legs of a stool; the business won’t stand without all three being strong.  The business must be able to (1) sell a product/service, (2) produce the product/service, and (3) manage its financial activity.  

It’s the last one on which I would like to focus.  As the business climate improves, smart business leaders will shift their focus from survival to business expansion.  They will see opportunities to increase sales.  What they often don’t see is the impact on cash flow from increased sales and new hiring.  It seems counterintuitive, but cash flow is toughest when sales are rebounding.  Failure to understand this can destroy a business.  If the cash gets spent faster than it’s collected, the business runs out of fuel.   When the fuel runs out, the business sputters and sometimes is forced into bankruptcy.    

If your business has cut back on financial management during the recession, it is critical for you to be focused on financial management as the business begins to grow again.  Don’t let one leg of the stool cause your downfall just when a more forgiving business climate may be approaching.