For many businesses, this is the time of year that new budgets, forecasts and projections are put together. Everyone wants to know what the outlook will be for next year. It is a critical topic, and the subject of my feature article for this edition of the newsletter.
Over the course of my 15 year career, I’ve put together a lot of financial projections. And I’ve always been on the lookout for a tool (spreadsheet based or stand alone program) that was both robust and flexible to get the data I wanted in the format that I wanted it in.
I’ve tried a lot of different programs over the years and have been disappointed every time. Invariably, I would be forced to create a customized model that was sufficient, but not ideal – no integrated balance sheet, cash flow or collateral projections.
During the past year, I’ve spent a great deal of time designing the model that I’ve always wanted. Initially, the primary reason for doing this was to provide maximum value to my clients – a great tool that would not require “starting from scratch” with each new client. As I progressed, it occurred to me that maybe other CFO’s or Controllers would be interested in this type of tool.
The result is XL Projection PRO, a new product that I am very pleased with and have recently made commercially available on the web. You can check it out at www.XLprojectionPRO.com.
Please click the link at the top of the page for a special, offer on this new tool.
As always, please feel free to forward this newsletter to anyone you believe may have an interest.
Best Regards,
Todd Rammler, CMA, MSA
President
It’s that time of year again. The kids are back to school. Baseball season is done and football season is well underway. The days are getting shorter, and there’s a chill in the air. This can only mean that we are in the midst of what some people call their least favorite season. . .
Budget season is the time of year when accounting people chase everyone else around and ask a bunch of annoying questions. Sometimes it’s for information that is truly needed; sometimes it’s just for fun (“Mr. Sales Director, how many “off-site meetings” at Bushwood C.C. will you be budgeting for next year?”).
For some companies, budget season begins much earlier in the year. For those fortunate few, the finishing touches are now nearly complete. For others, the process has not yet begun, and it needs to get going. Still others – for a variety of reasons – don’t even do a budget.
For purposes of our discussion, I’m going to use the terms budget, forecast and projection interchangeably – although in practice they have different meanings.
Approximately 80% of the businesses I work with do not use a budget at the time we begin working together. Nearly 100% of these businesses acknowledge that they should have a budget, that they’ve wanted a budget for quite some time, but they really don’t know how to go about it or don’t have anyone on staff who’s capable of putting it together. Or they don’t have the time.
There’s also a small percentage who think that budgets or projections are a waste of time because their business is “different”, usually because their revenue is difficult to predict.
If you don’t even attempt to look ahead and determine what is likely to happen next month, next quarter, next year. . . how will you know if it’s acceptable or unacceptable? How will you know if you’re facing a potential crisis because of lack of revenue. . . or a potential crisis because of lack of resources? If you don’t bother to look, how will you know what you should do to change direction?
As an advocate of the budgeting process, I have to give you this disclaimer in the interest of full disclosure: You will never hit the forecast ‘dead nuts’ – except by sheer coincidence. There are too many variables. But you CAN hit portions of the forecast dead nuts through proper planning, execution and management.
Doug Hicks, a colleague and a recognized expert in ABC (Activity Based Costing) implementations often says “I’d rather be mostly right, that precisely wrong” when discussing projections. In other words, you don’t need to spend excessive time trying to get an exact, precise number because any number you settle on is going to be wrong. However, if you spend time getting the underlying assumptions reasonably correct, your projections should be in the ballpark. There is virtually no chance of predicting precisely what your revenue is going to be next month, let alone six months from now. But you probably have a good chance of predicting it within a certain range. From there you can do “what if” analysis and plan accordingly.
We’ve all heard the expression “Cash is King”. Unfortunately, unless you use the cash method of accounting (as opposed to the accrual method) the P&L doesn’t tell you much about the company’s cash flow. The balance sheet and cash flow statements are needed.
Many business owners don’t have a good grasp of what the balance sheet or cash flow statements are telling them, so there may be reluctance to spend time creating projections for statements that no one pays much attention to. But with a few minutes of training & explanation, the statements will become relevant and helpful.
My guess is that less than 10% of small companies that actually do projections incorporate a balance sheet and cash flow statement. Why? Because it’s difficult. It requires assumptions, and it’s subjective. Not as scientific as a P&L. So it’s skipped.
Going the extra mile and completing the projected Balance Sheet & Cash Flow Statement will help to answer important questions about cash flow, such as:
These are critical questions that should be tied in with the P&L projections to ensure all the numbers are linked together and that any changes in assumptions automatically roll through all the statements.
When a banker asks a business for financial projections, they are driving at one issue: Is the business going to generate sufficient cash to repay its debt? In order to answer this question, a projected Balance Sheet and Cash Flow Statement are necessary. If this information is important to the banker, it ought to be important to the business owner as well.
I have seen clients make dramatic improvements in their businesses simply by managing the business with an appropriate budgeting tool. When the data is in front of you, you have the ability to make critical decisions and impact the future. It’s tangible. Alternatively, when the projection data is bouncing around in your head, it’s competing with too many other things and is not organized for decision making. Similar to goal setting, the key is to write it down, and manage it.
Commit to using projections as a management tool in your business. . . I guarantee you won’t be disappointed.
For more information on financial projections Contact Michigan CFO Associates, Inc. or visitwww.XLprojectionPRO.com
Businesses of all sizes and throughout all industries commonly use rewards and recognition to motivate staff. After all, one of the most basic needs for employees is to be appreciated.
Surveys suggest that at least three out of every four U.S. corporations rely on some sort of recognition-based pay-for-performance program to motivate employees.
There is not doubt that recognition is an important part of employee job satisfaction. Results of employee surveys indicate that recognition for a job well done is the top motivator for employee performance. (In a Robert Half International survey, 34 percent of executives cited limited recognition and praise as the single most common reason that employees leave a company.)
It’s no secret – keeping employees motivated and satisfied is crucial to the survival of any organization. What is much more difficult to quantify is the tangible, hard-dollar impact of performance incentives. Specifically, how can you put into place a reward and recognition program to improve employee performance, as well as improve overall business performance?
According to recent surveys, the most common employee recognition is given for years of service. If it makes sense to tie incentive programs to desired behaviors, it seems odd that racking up decades of service would merit such a reward.
Rewarding employees for endurance but overlooking outstanding results sends a confusing message.
A better tactic is for a business to define the outcomes that are critical to a businesses overall success, and then encourage the corresponding behaviors that will get them there.
Many business owners also recognize and reward employees for contributing to improved customer service and improved customer satisfaction. This is especially appropriate in a professional services firm or personal services. It becomes critical for the business owner to have in place meaningful measurements of these metrics over time. In that way, any improvement in service and satisfaction can be accurately aligned with a particular work group or department.
Improved quality, or reduced defects, is another key business objective that can be measured and rewarded. Consider rewarding both individual and group accomplishments in order to promote both individual initiative and group cooperation and performance.
In order for a rewards program to be successful, the specifics need to be clearly spelled out for every employee. Employees must understand how they are being measured. Once this has been done, reinforce the original communication with regular meetings or memos promoting the program.
Now that employees understand what kind of achievements are being recognized, what’s the payoff? For small business owners, employee recognition can take a variety of forms. Structured programs can include regular recognition events such as company-wide lunches or breakfasts, employee of the month or year recognition, a newsletter which features the accomplishments of employees, or even a special employee of the week reserved parking space.
Other informal programs can take the form of privileges such as working at home, starting late/leaving early, or long lunch breaks. Symbolic recognition such as plaques or coffee mugs with inscriptions can also be effective, provided they reflect sincere appreciation for hard work.
To conclude, no matter what the “pay off”, the key to employee reward and recognition program is to both measure and reward meaningful performance metrics. Certainly the tried and true seniority-based rewards, such as length of service with an organization, might still have their place.
Awards for employees with 25 years of service, for example, could be aligned by recognizing those employees who have effectively lead their departments to key performance over their tenure.
By linking this kind of recognition to measurable outcomes, improved overall business performance can be achieved.
Contact Michigan CFO Associates, Inc. for assistance in managing your small business.
For most companies, especially small business owners, hiring is a hit-or-miss process.
The problem is that for most companies, hiring is not actually a process. Instead, its series of random and arbitrary events left up to the personal whims of each hiring manager.
Small business owners, in particular, have great expertise in their chosen field – yet when it comes to new hires, it’s often difficult for a company to grow beyond a certain point without a focused hiring effort to attract additional experienced, talented employees.
Making great hires — defined as hiring someone in the top quartile of performers — requires turning hiring from a series of random events into a systematic and rigorous business process.
Here’s a list of tips to help in your next hire:
Keep in mind that the most important thing you can do is to know what you expect from your new hire.
Before you put the word out, or advertise for help, sit down and write a job description. List your goals for the new hire – do you want someone who can work a regular schedule? Do you want someone who can meet with clients, set their own schedules and attend meetings and events on your behalf or do you simply need someone who can pick up your overflow?
Take the time for this important activity. By spending time working through your thoughts you improve the chance for a great working relationship. If you can clearly articulate the job to all applicants, they will have the opportunity to determine if this is a mutually agreeable fit. Be sure to concentrate on specific job-related descriptions, and not subjective information.
Contact Michigan CFO Associates, Inc. for assistance in managing your small business.
There’s good news online for business owners in the form of the many informational websites available for planning, managing, and succeeding. The bad news is that it takes a lot of time to wade through this information to see exactly how valuable some of these websites are.
We’ve run across one of the more useful sources of information to be found on line, and it comes from the recently launched Small Business Administration website, developed and maintained by the U.S. Small Business Administration (SBA). The site includes information and resources that will help you at any stage of the business lifecycle.
Touting itself as offering “programs and services to help you start, grow and succeed,” the website offers an intuitive and informational “Planner” that conveys critical information to plan, start, manage and even exit a small business.
The planner is segmented into four sections: Plan Your Business; Start Your Business; Manage Your Business; and Getting Out.
The “Manage Your Business” is the most content-rich, and discusses tactics for leading, making decisions, managing employees, marketing, fair practice, taxes, insurance, legal concerns, technology and other key areas.
As an example, many small business owners grapple with the decision of whether to lease or buy equipment. For many businesses, leasing equipment, instead of buying it, can be the best option. The website describes the many variables that should be considered, including costs, use restrictions, legal parameters, and others.
The small business planner also gives information regarding the likelihood of whether a lease is deemed a purchase for tax purposes by the IRS. Small business owners may then be able to deduct payments on the leased equipment. To address this issue, the website offers IRS Guidelines.
The “Getting Out” section offers detailed information on selling assets, transferring ownership, liquidating assets, bankruptcy protection, and more. The site makes the case that planning your exit strategy often involves more than just closing down.
Find this useful online resource at: http://www.sba.gov/smallbusinessplanner/index.html
Contact Michigan CFO Associates, Inc. for assistance in managing your small business.
As discussed above, I recently launched a website offering what I consider to be the best spreadsheet projection tool I’ve ever used. I am making the model available at a discounted price during the “BETA” phase, while I collect feedback from users. The model is fully functional and I have not yet received any negative feedback or issues that could not be addressed.
The discounted pricing during the BETA phase will end 12/1/2007 – after that the price will increase substantially. I offer a rock-solid guarantee on the model, so if you are dissatisfied in any way, you can get a full refund.
For more info, please visit www.XLprojectionPRO.com.