Simply saying the word “Budget” can immediately create tension in an organization. Some companies start their budget process in August and some companies do not budget at all. If budgeting gives you anxiety, consider an alternative: a forecast. What is the difference?

A budget is a more comprehensive exercise that is usually communicated throughout the organization and provides everyone guidelines to operate under.  A forecast can be a simple directional exercise to help you figure out where you want to go and how to get there.  Forecasts can be a detailed endeavor or just a simple one pager to help you brainstorm about how to continuously improve your business and achieve your goals.

Most accountants are only good at looking backwards.  An experienced Fractional CFO can help you look forward.  This unique ability to look forward helps improve the probability of success in achieving your goals. Here are some things to consider:

Set Your Goals

Do you want to grow by 20%?  Do you want to improve margins?  Improve quality?  What are you willing to invest to achieve those goals?  When we meet with clients, the first thing we do is understand their goals.  That vision helps outline a path.  Creating a forecast puts it on paper to help illustrate that vision and adjust accordingly.

Key Drivers/Metrics

Once you have outlined your goals and you start to sketch it out, you will ultimately back into key metrics.  If you want to grow by 20%, how many sales calls are needed a week?  That becomes a key metric.  Need to increase your staff by 18 people to handle the growth?  Applications received and interviews conducted could be a key metric.  Creating a forecast will help you identify your key metrics beyond typical operational data.

Income Statement 

Can we hire these additional 18 people with our existing staff or do we need to hire a recruiter?  What will the impact be on our Worker’s Comp premiums?  Where are they going to sit?  Do they need computers or will they be using tablets?  Is accounting going to be able to keep up with the growth or is that process is going to break down?  Creating an income statement is a great way to brainstorm.  Having an experienced Fractional CFO who has been through these growth spurts to help you forecast is invaluable.

Balance Sheet/Cash Flow 

Do we have the capital to do this?  Do we need a line of credit?  Understanding the impact on the Balance Sheet and Cash Flow is a common oversight as companies map out their growth.  We often have to tell people that they don’t have the cash to achieve their growth goals.  They either need to revise their goals or source additional capital.  Certainly, a bank or any other capital source will want to see some sort of forecast.

Measure Results 

One of the great things about creating a forecast is that it creates context.  When you look at your financials, are you only comparing to last year?  That is no way to look forward.  Having a forward-looking vision gives you a more relevant comparison.  Comparing against a forecast also gives you plenty to discuss.  Why were we better or worse than what we thought was going to happen?  It spurs great discussion and identifies new metrics along the way.  After doing this for a year, you will be smarter about the process next year. In conclusion, a simple forecasting exercise could make you smarter about the financials of your business and help spur discussion for improvement to help drive the value of your business.  The CFO’s job is to be in the middle of this discussion to help you achieve your vision.  Fractional CFO firms exist so that every company can have access to great CFO with tons of experience in these forward-looking endeavors.

If you would like further information about Crown CFO, reach out to Mike DeMaio ~ mike@crowncfo.com