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Goal Setting for the New Year

As the new year picks up steam from the holiday lull it is important to start planning the steps necessary to be successful. Goal setting is a powerful tool to achieving success! (I was going to say “achieving goals” but if you don’t have any goals then you can’t reach them!) That leads to the next question: Why set goals?

Goal Setting for the New Year

Picture yourself trying to shoot an arrow at a bulls eye target with your eyes closed. Can you do it? Maybe. However, most probably not! Same thing goes for success! If you can’t see it, how can you achieve it? The best way to achieve success is to define it by setting goals.

How far out should you set goals?

Depends on how big your goals are. At a minimum you should set goals for the next year. I prefer to set goals over a three year period. I then break them down to annual goals, quarterly goals and weekly goals.

Goal Setting Strategies

For our company we use the holiday lull in business to begin planning for the new year. The first step is to have a brain storming session with the key players in the company. Typically, that would be department heads. In this session we throw out every conceivable goals that we want to accomplish. Generally, we come up with 30 to 40 goals.

Out of these goals we identify 4 to 5 major goals for the next one to three years. We then organize the remaining goals underneath the major ones with targeted completion dates. Next, we identify quarterly milestones for each goal leading up to completion. Finally, we assign these goals to departments or functions in the organization.

Once completed we have a road map to success. However, this in itself is not enough. The last step in goal setting is to assign these goals to individuals within the organization. Their performance evaluations and bonuses are then tied to how effective they are in achieving the company goals.

Does this goal setting process work?

We have been using it for ten years. Each year we are setting higher and higher goals for the organization. Do we achieve them all? No, we do not. But if we achieve 50% we are much farther along than without them. Remember; if you don’t aim for a target, then you won’t hit it!

Goal setting with your CEO is a great way to earn trust and address each other’s needs. Learn how you can be the best wingman with our free How to be a Wingman guide!

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25 Basis Points

Press Release for 25 Basis Points

Release Date: December 11, 2007

For immediate release

The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 4-1/4 percent.

Incoming information suggests that economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending. Moreover, strains in financial markets have increased in recent weeks. Today’s action, combined with the policy actions taken earlier, should help promote moderate growth over time.

Readings on core inflation have improved modestly this year, but elevated energy and commodity prices, among other factors, may put upward pressure on inflation. In this context, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.

Recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation. The Committee will continue to assess the effects of financial and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.

Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Charles L. Evans; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; William Poole; and Kevin M. Warsh. Voting against was Eric S. Rosengren, who preferred to lower the target for the federal funds rate by 50 basis points at this meeting.

In a related action, the Board of Governors unanimously approved a 25-basis-point decrease in the discount rate to 4-3/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve Banks of New York, Philadelphia, Cleveland, Richmond, Atlanta, Chicago, and St. Louis.

FOMC Statement December 11, 2007

25 Basis Points

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What Will the Fed Do?

The Federal Open Market Committee is expected to announce a third consecutive cut in the federal funds rate today. Equities were up early, but have fallen to near their open in advance of the announcement which will come later today. What will the Fed do?

What Will the Fed Do?

It would seem that the Fed is anticipating a slowdown in economic growth. The global economy is working through the problems in the credit markets. Furthermore, the meltdown in securities backed by subprime and adjustable-rate mortgages (ARMs) creates these problems. In addition, the anticipated impact of expected significant declines in home prices (US and UK) created these problems.

What Will the Fed Do

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Defend the Bottom Line!

During a downturn in the economy the overriding goal of the Chief Financial Officer and management team is to defend the bottom line or profitability of the company. At a minimum you should achieve break even. The economy ebbs and flows like the tide. During the good times a company should generate profits and pay down debt. During a slow economy they should do everything they can not to give up the profits they have earned.

How to Defend the Bottom Line

So once you find yourself in an economic downturn what should you do? You should first recognize that you can’t save your way to profitability. Cutting costs though a useful tool will not get you to your goal.

The first step you should take is to get a good handle on cash and cash flow. You should prepare a daily cash report and a twelve month cash flow projection. You cannot run out of cash! Most managers fail to shift their focus to cash management until they have run out of it. By then it may be too late.

The next step may seem counter intuitive but is key to prospering in a downturn. You should increase your marketing expenditures and efforts. Most companies do the opposite! They slash advertising expenses and lay off salesmen to cut costs. If anything you should be doubling up on your sales effort! In a downturn there are still sales transactions taking place. There are just fewer of them. To maintain your revenue stream you need to get a larger percentage of the market. That takes more effort, not less!

Finally, to survive a downturn remember rule number one: Don’t lose money! So restructure your costs to achieve break even with the revenue stream you are generating. The goal is to survive to fight another day! Improve your pricing – and your profits– by downloading the free Pricing for Profit Inspection Guide.

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If They Will Buy, Then I Will Sell!

If they will buy, then I will sell! Or stated another way, if I can sell it then buyer beware! That seems to have been the motto for the sub prime mortgage industry. Over the past five years a looming crisis has been in the making. Mortgage brokers would originate the loan then immediately pass on the risk to the investors. Few would keep the loans for a month let alone ninety days. Consequently, they were assuming little risk and had no incentive to police the quality of the loan.

If They Will Buy, Then I Will Sell!

Some people are questioning whose responsibility it was to police the market. At some point in the cycle someone needed to say no to the level of risk being assumed. Some say we should have government oversight. I say it is the job of Mr. Market!

The only thing that keeps people from taking stupid risks is the fear of loss. Until recently we haven’t had that in the past five years. During this time period we have experienced low cost of capital, high liquidity and increasing productivity of employees. Now the market forces (i.e. losses) are policing the sub prime markets.

Other Markets in the Economy

The real question is what other markets in the economy are in line to be disciplined? The economy is beginning to look like a slow moving train wreck. This scenario is not unlike the dot com bust where few of us were directly in the business but all of us were effected. Now is the time for entrepreneurs and their CFOs to take action to weather any possible storm. Download the External Analysis to gear up your business for change.

If They Will Buy, Then I Will Sell!

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Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

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If They Will Buy, Then I Will Sell!

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Don’t Let Tax Strategies Drive Financial Performance

With most young companies cash is king. As a company grows managing the cash available to finance that grow is crucial to sustaining the growth rate. Minimizing the cash expenses of the company is an entrepreneurs and CFO’s primary job. One of the main cash expenses is federal income taxes.

Don’t Let Tax Strategies Drive Financial Performance

During this start up and growth phase (which can last 10 years or more) the entrepreneur is focused on minimizing the cash payments for federal income taxes. He will work closely with his tax CPA to aggressively take financial positions that minimize taxes.

Somewhere along the line this strategy begins to lose its effectiveness. It generally happens when outside bank financing is obtained to fuel the growth of the company. As larger and larger amounts of outside debt is obtained the financial reporting needs of the company changes. The financial statements must now be presented to new users (i.e. the bank). The banks are seeking a clearing picture of the financial position of the company on an accrual basis. Often they want to know the true equity available from the company so they can establish the leverage of the company.

But maximizing the equity value of the company often is at odds with minimizing federal income taxes. To minimize taxes you typically end up either taking deductions sooner, deferring the recognition of income or valuing assets more conservatively. Taking these positions is fine until you want to borrow money.

Most entrepreneurs want to borrow as much as they can to fuel growth. However, by presenting there financial statements on a tax basis they minimize the amount that lenders will advance.

Conclusion on Tax Strategies Driving Financial Performance

The answer is that just as no strategy works in every situation, neither does one strategy work forever. The goal of the CFO should be to educate the owner to the needs of the other users of the financial statements. Often the benefits of paying higher income taxes is offset by the increased growth rate of the company.

Tax Strategies

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Forecasting and Your Business

Do you manage your business looking backward or forward? Are you preoccupied with looking at how last month compared with the budget instead of where your business is headed? While examining actual performance against the budget can be a very useful approach to identifying areas of improvement in your organization, it can also take your focus away from planning for your future business needs.

Forecasting and Your Business

It is important to develop and maintain a running forecast model of your business, one that incorporates trends (in sales, COGS, and overhead) as well as other information (addition of a significant new customer, loss of a substantial current customer, anticipated large changes in raw material prices and/or other expenses, or a new building lease, for example). This will help you estimate your upcoming needs for cash and give you the time to adequately prepare.

Connecting Your Financial Statements

You need to have an income statement model. This projects sales based on expected items or services sold and the prices received, as well as expected gross and net margins. Then, tie your income statement to a projected balance sheet and statement of cash flows. You should also consider a running working capital forecast as well as a capital expenditure forecast.

Being able to anticipate future capital needs months in advance can go a long way to improving your company’s performance by allowing you the time to seek out the best terms (in cost of capital as well as other terms). Such a forecast will help you establish credibility with prospective lenders and investors as well as provide an easy means of communication with them.


Click here to forecast and project your business accurately with our Goldilocks Sales Method whitepaper.

Forecasting and Your Business

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