Business Forecasting Matters

Finding the right number of “what if” scenarios in order to identify enough possibilities of what is going to happen is what business forecasting is all about. Many business owners mistake it as a way of knowing for certain what will happen in the future. That’s never going to happen, of course, because no one can predict the future. There are innumerable variables to consider that could throw off even the most sophisticated forecast.

When creating the best possible forecast, the Chief Financial Officer has the task of identifying the top seven (or so) most likely scenarios and doing a full “what if “ analysis on each of those scenarios. Included in the seven scenarios should be a best case and worst case. The tool to figure those out is one that has together in one a Profit and Loss, a balance sheet, cash flow, inventory plan and sales forecast. As long as they’re adaptable to retail, manufacturing, distribution or services (depending upon what type of business) schedules can be broken down by quarter, month or even by week. Key metrics and where the risks and opportunities are also need to be included in the model (the great thing about which is whenever a number changes anywhere in this model, all the other numbers adjust).

This type of model is a tool Next Step CFO uses in business forecasting as a part of its CFO Services. This model shows a wide range of scenarios to the business owner, along with all the risks and opportunities associated with those scenarios.  When a business owner is provided with all the information a Next Step CFO business forecast gives them,  they have the knowledge they need to make their decision making process much more thorough than a business owner who makes a sloppy or lazy forecast, or a business owner who forgoes creating a business forecast altogether.  The more thorough the decision making process, the more reduced  risk to the business owner will be, so every business owner needs to recognize the importance of Business Forecasting.

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Should CFOs Get Involved With Search Engine Optimization (SEO)?

Does this sound a little out there? One CFO Service that I think adds real value to the business owner is a CFO who understands Search Engine Optimization (SEO). Who said that CFOs are all about the numbers? In todays business world the CFO has to provide services for their client that go beyond the numbers that really assess risk and find opportunity. In today’s High Tech world giving the business owner guidance on SEO can really provide another opportunity for the business that did not previously exist. The thing that makes SEO suited for the CFO as part of a CFO’s Duties is the detail orientation of a successful SEO plan. By understanding the components of a successful SEO plan and by properly delegating the plan to the right people the CFO can help the business owner generate more business and have added value as a CFO.

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Why CFOs Who Work Part-Time Are Valuable

The most cost effective and productive way to use a CFO is on a part time basis. In other words, as a business owner the thing to do is find yourself a CFO Consultant. Back in the day, Chief Financial Officers were commonly called controllers, and controllers would pay a lot of attention to monthly closings, financial statement preparation and profit planning. With today’s operating systems and more sophisticated accounting modules, CFOs can share their attention with areas that are more productive to the business owner. For example: CFOs can focus on business forecasting, inventory planning and reduction of risk. These aforementioned productive CFO duties and CFO services do not take full time manpower. You can even add a number of other CFO services and it still will not require a full time CFO. When you hire CFOs on a part time or temporary basis they will not require benefits as most are of independent contractor status. Part time CFOs are also your CFO as long as you want to keep them. The Business Owner will not get a two week notice because they found another job. In closing, CFOs who work on a part time basis are more valuable than a CFO who is a full time employee because they will tackle the most important issues in your business while being extremely cost effective.

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CFOs Who Understand The Risk Of Business Ownership

I’ll take a CFO who has owned a business before over anyone with a lot of practical experience and a lot of diplomas. My reasoning: the chief financial officer who has owned businesses actually understands the risk involved in being a business owner. Why? Because they too have been there. Choosing an outs sourced CFO with an owner’s perspective is a good move not only because they understand the risks and feel the risks of owning a business, they can identify those risks easily and quickly, making them much more valuable to the business owner than any CFO for hire who has never actually run a business themselves.

Until you feel how it feels to have an unsuccessful sale in retail, or know what it’s like to not be able to fill manufacturing orders because you did not have the right inventory or have not had enough cash flow to make payroll, or experience the pressure of employees underperforming you do not really understand. These are just a few of the issues that only business owners worry about and stay up nights thinking about, and no amount of practical experience or diplomas can replace it.

Employees and vendors do not worry about these issues nor do they have the owner’s perspective of these issues. If you’re looking for a CFO or temporary CFO, look for one who has owned a business before.  Not only does this CFO have the financial and business acumen to be productive, but also a mind set that only a business owner has. In short, they can really perform like a business partner without owning stock. The CFO who has owned a business gives the business owner another set of business owner eyes and that is invaluable.

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CFOs: Why Companies Need Them

One thing business owners hate is surprises (unless, of course, it’s one of those elusive pleasant surprises, but when is that ever the case?). The much more common unpleasant surprise is enough to give a business owner a gray hair or two. Chief Financial Officers, or CFOs, need to tell the business owner when it is cloudy, not when it is raining. This is a key role of the CFO: reducing the element of unpleasant surprise. Identifying cash flow problems before they occur and identifying inventory overstocks or shortages before they occur are just a few of many trouble spots that can be identified with the help of an outsourced CFO.

Today’s business owner wears so many hats and needs to be able to make decisions quickly. A temporary CFO can be brought in to identify and assess the risks involved in those quick decisions in a timely manner, so the business owner won’t miss a beat.Today’s CFO can also do many things to help reduce the business owner’s risk. One such example  is looking into the Corporate American Express Card. Qualifying for certain classifications of corporate American Express Cards will just have corporate liability and no personal liability.

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The Risk in Partnerships

When two or more people get into business together there is risk that needs constant assessment. Partners in business together must have the following characteristics:

 

  1. Must be logical in their thinking. It is not all about one partner. Sometimes the logical business decision can disadvantage one partner over the other(s). It is critical that the partner being disadvantaged is logical in their thinking to separate what is right for the business from what is right for the disadvantaged partner.
  2. Must eventually be at peace with all decisions. Although it is healthy to have different opinions and constructive arguments, eventually all partners must understand that a decision needs to be made and although it may be contrary to one partners opinion the dissenting partners must be at peace with the decisions.
  3. Partners cannot be bitter if they get diluted. There are many times when a business needs more money and the partners have to ante up. Sometimes there are partners who do not have the money or do not want to invest in their business at the particular point in time when money is needed. These partners who do not participate financially cannot be bitter when their stock ownership gets diluted. If it only fair to the partners who are risking the additional capital that they get stock for the risk they are taking.
  4. Partners must understand the rough and tumble world of commerce. Partners must be prepared for troubled times in the business. Exemplified by, lower salaries, difficult cash flow problems and personal guarantees. The character of the partners must be in harmony during these periods.
  5. Only one person can run the company. It is a good idea for one partner to take the lead role in the business. Be viewed by the suppliers, customers and employees as the point person. Sometimes this can make the partners not taking the lead role feel inferior and bitter.
  6. Not all partners are created equal with regard to salary. Partners must understand that different partners take different skills to the table. Some of those skills are more valuable to the business than others. The business needs to pay more money to the more valuable skill sets. You would not pay a store manager the same as a CEO. If one partner brings store management skills to the table that is valuable, but can be replaced with another store manager if the salary is out of hand. This is difficult for many partners to understand.

 

Sometimes business partners will call upon the CFO to be their mediator when they’re having a dispute, but partners need to keep their eyes open when they enter into business deals.

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CFOs Need A Diverse Set Of Capabilities

Chief Financial Officers in today’s business world need a diverse set of capabilities. Being responsible and managing money is an important CFO service, therefore the CFO needs to know a great deal about ALL facets of business and business ownership, including out of focus aspects such as marketing or manufacturing, to better do this job. The CFO might not start out an expert on every last detail of the business world, but developing a deeper knowledge of those out of focus areas is a great step towards broadening a CFO’s capabilities, making business owners take notice and consider what  an invaluable asset a CFO who really knows what they’re doing is in a business world that revolves around money.

 

Let’s take marketing, for example. On certain aspects of marketing (particularly website marketing and search engine optimization), a Part Time or Temporary CFO can provide some really useful insight and help clients a great deal. A business can attain top positions on Google and other search engines with a good Search Engine Optimization (SEO) strategy. Those kinds of positions will give the business a strong Internet Presence, thereby enhancing their current marketing strategy. Thanks to knowledge about a facet of business a bit outside their realm (marketing), the CFO in this example was able to do their job better.

 

On the subject of marketing and good SEO strategies, using an RSS feed will help you get top positions on Google and other search engines. Fresh up to the minute content can be provided for your website by an RSS feed. Reuters example of an RSS Feed is Reuters who services many news related websites with up to the minute news around the world through an RSS Feed. The best way for a business to use an RSS feed is to start a blog about their business and write articles daily about their business using key word rich content. Most Blogs have an RSS feed connection and connect the RSS Feed from the Blog to your website and every time you write an article about your business and post it to your blog it will change the content of your website. When you change the content of your website the search engine crawlers index your site. The more you change the content the more you get indexed by the search engines and indexing increases your search engine ranking.

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The Importance of Business Forecasts

Business Forecasts are an essential Service and Duty to any responsible CFO. Many of my clients ask me what the purpose of business forecasting is. More traditionally, the role of CFO has been that of a historian, in that they told the business owner financial results from the past. While knowing what happened in the past can be useful for sure, what business owners really need to know is where they’re headed. A CFO should be able to tell the business owner what they think is most likely to happen in the future. Basically, tell the business owner today to bring a raincoat tomorrow because it’s going to rain, don’t tell them tomorrow that it’s raining while they stare at you drenched and disgruntled. Trust that business owners generally know where they have been. Today’s Chief Financial Officer should let the business owner know about what direction the business is going to take in the future.

 

A business forecast answers this major question: will the existing business model achieve the desired results, or not? Obviously, if the answer is not, the business model will need to be changed. A CFO should not only be able to prepare a forecast on a business’s existing business model, but also be able to prepare a forecast on a new model if the preexisting one does not work. The CFO needs to have knowledge of the industry and a sharp over all understanding of business that can only be achieved through the experience of owning a business themselves, and accurate forecasting tools at their disposal in order to do this.

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Inventory Purchases

When their client is making a decision about which supplier or vendor to purchase their inventory from, the part time CFO needs to make sure their client is considering all factors. Sometimes this particular CFO service is forgotten, but it’s a service that can save the client many dollars all facts considered.

 

Consider the following when choosing what supplier to purchase inventory from:

 

  1. Terms
  2. Price
  3. Price breaks
  4. Freight costs
  5. Turnaround time
  6. Restocking charges
  7. Minimum quantities
  8. Does the vendor confidently stand by their product?
  9. How efficiently is the product handled?
  10. Is the product packaged efficiently?
  11. How efficiently can the product be used?
  12. Are you getting sufficient support from the vendor to help sell their product?
  13. Is the Vendors’ credit department flexible?
  14. What products do your competitors sell?
  15. Can orders be cancelled without penalty?

 

The obvious part is looking for the best price, but remember it’s also important to know where the quantity discounts or price breaks are in comparison to other suppliers. If you hit a brick wall in your attempts to negotiate with your vendor, ask for free freight. It’s an offer many suppliers will give you.

 

You need to understand what the turn around time is and how quickly your customers will receive a product after it’s been ordered. If you have a cash flow problem, it is especially important for you to know turn around times because you need to time your inventory receipts very precisely. It helps to know minimum order quantities if you have a cash flow problem, sometimes all you need is a small quantity.

 

Vendors need to take full responsibility for their product. That means if something goes wrong with the product, be it an issue of quality or technicality, the vendor needs to issue proper credit upon the product’s return, and the client needs to feel absolutely confident in the fact that their vendor will do that. Vendors should wave restocking charges unless the client is in an industry where there are a lot of special orders, so make sure and check what their restocking fees are for a product that has been incorrectly ordered.

 

The receiving department depends on the efficient handling of products. You need to consider all possible methods and avenues at once to save costs through out the entire process. This means you need to consider everything from logistics to manufacturing to merchandising/packaging to how efficient the product is to use at once, and figure out where you need to sacrifice and where you shouldn’t to end up with the most cost efficient solution. For example, one of my clients in the insulation business uses the pink panther insulation because although it is more expensive, it is so much easier to install that it makes up for any extra cost it incurs.

 

Support from your vendor to help you sell the product is a very big help and a sign of good faith. Anything from free displays and marketing materials to coop advertising programs tells you that the vendor is dedicated to working with you and is happy to be. It’s always good to know when you’re in a cash crunch that your vendor is willing to work with you, and hopefully also that their credit policies are flexible enough to with stand economic shifts and industry downturns.

 

If you know what your competitors sell, you can use that information to find a vendor who is not with competitors in your market. You will probably be able to get a good deal out of such a vendor because they do not yet have much market share in the market you serve, and chances are they’d love to work with you to get in there.

 

One of the most common things businesses (especially retail businesses) get in trouble for is over buying inventory. You will want the flexibility from your vendor to cancel your orders with out being penalized. This option will cut down on your risk of overbuying by giving you the option to reassess what you really need and change your mind, and also protecting you from having impulsive purchase decisions become permanent.

 

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The Chief Financial Officer And Communication

In order to be successful, a CFO must have solid communication skills. These skills are even more important for CFO consultants because with multiple clients, the challenge to communicate with them all becomes even more difficult.

 

The number one rule for being the kind of good communicator a CFO or CFO consultant needs to be is that you are responsible for both sending and receiving communication. You aren’t a good enough communicator if you only take responsibility for what you send out. You need to understand what the other person is saying and make sure they know they’ve been understood. Identifying the needs and wants of their clientele is at the core of what being a CFO is all about, and at the core of finding out what these needs and wants are is good communication with your clients.

 

It only takes one person in the loop to break down communication. If one person does not like someone else in that loop, communication starts to break down. Agreement and understanding are hindered if a person or people in the communication loop let their biases affect them. If people like each other perfectly fine but cannot agree in the loop and refuse to bend or compromise, or simply let their frustrations rule their behavior, communication starts to break down.

 

The only way to obtain good communication with in the group where you need it the most is to having a liking for and respect for the people in your “loop”. You need to be in agreement and understand each other, and be a true united front.

CFO’s and CFO consultants need good communication skills and also need to be able to impart those skills to their clients.

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