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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

Strategic CFO Lab Member Extra

Access your Sales Genie Execution Plan in SCFO Lab. The step-by-step plan to produce accurate sales forecasts or projections.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Forecasting and Your Business

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Crude hits high, Dollar hits low

NYMEX crude oil futures contracts for December delivery closed at an all-time high of $91.86 per barrel today, due to falling domestic supplies, ever growing global demand, political instability in the Middle East, continued weakening of the US dollar, and some speculation. Despite the run-up, OPEC seems unlikely to boost production. Crude hits hight, while the dollar hits low.

Crude Hits High & Dollar Hits Low

The dollar fell to an all-time low against the euro today. As crude oil prices tend to be quoted in dollars, a weaker dollar leads to higher prices.

crude hits high

So what does this mean for the US consumer and US firms? Perhaps not as much as it did 30 years ago, as US consumers spend a lesser portion of their incomes on fuel. Still, this cannot be welcome news.

The Federal Reserve’s Open Market Committee meets next week. It is anticipated that the Committe will further cut its federal funds rate target, an anticipation which has helped to drive the value of the dollar down relative to the euro.

In these uncertain times, it is best to prepare for the worst. WikiCFO has tips for how you can position your company to brave these choppy economic seas.

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New Home Sales and Prices Take a Dive in August

A significant source of growth in the US economy in recent years has exhibited further weakening per a Commerce Department report released this morning. Let’s look at new home sales and prices.

New Home Sales and Prices Take a Dive in August

New home sales and prices fell to their lowest rate in seven years and new home prices had the steepest one year decline since 1970 along with rising new home inventories. Additionally, homebuilders KB Home and Lennar both reported dismal performances for their 3rd quarters.

On a more upbeat note, the number of new unemployment claims declined to the fewest new claims since May and the US GDP grew in the 2nd quarter at an annualized rate of 3.8%.

Still, the storm clouds seem to be gathering.

New Home Sales and Prices

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Computers Change CFO’s Role

When I started out in public accounting in the late 70’s I remember working with green bar paper, IBM 36 computers and having to foot computer reports because you couldn’t trust them to add correctly. As a new hire, you had to prove your proficiency with a 10-key adding machine before you were sent into the field. Now most people don’t know what a 10-key adding machine is!

Accounting Programs Then

Accounting programs were cumbersome at best. For example, they often require manual oversight to make sure they stayed in balance. Furthermore, accounting departments were made up of numerous clerks and accountants entering and reconciling data.

Computers Change CFO’s Role

A lot has changed in 25 years. Today if you print a report out of a computer you expect it to foot! Data entry has been simplified. In addition, you can often capture data outside the accounting department. Accounting software makes it difficult for the subsidiary ledger to be out of balance with the general ledger. (It may not be correct, but, at least it will agree!)

Computer Revolution

So what happened? Welcome to the computer revolution. Because of the increased power of computers and sophistication of accounting software you no longer need the same number of people to maintain accounting systems today. Furthermore, the role of CFOs and controllers of smaller has changed.

In the past a CFO/Controller had to manage a larger staff and be more of a technician to manage the process. Now with automation and outsourcing those functions no longer take up as much of their time.

As the amount of time devoted to accounting tasks decreased the time allotted to other administrative areas has increased. CFO/Controllers today are often responsible for human resources, information technologies, insurance and facilities management. In fact, better describe the CFO/Controller role as the chief administrative officer.

WikiCFO

Today there is a new resource!

WikiCFO was created to be a repository of best practice ideas in the various areas affecting the job of a chief financial officer or controller of middle market companies. CFO/Controllers can go there to find and share tips and tricks in cash flow, profit improvement, health benefits, information technology, banking, payroll, etc. WikiCFO enables CFO/Controllers to drive more value to the bottom line!

Technology and the evolution of computers is just one example of how external forces are changing how we operate. Download the External Analysis to gear up your business for change.

Computers Change CFO's Role

Strategic CFO Lab Member Extra

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

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

Computers Change CFO's Role

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Fed Lowers Rate Target – Time to Pop the Cork?

Yesterday afternoon, the Federal Open Market Committee did what nobody expected. The Fed lowers rate target. If you paid any attention to published reports, then they acknowledged what was already priced in by the futures markets and lowered its target for the federal funds rate by 50 basis points to 4.75%. While US equity markets reacted favorably to the news, with the Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 indices all up on the news today, it is unclear as to whether this is a sign of good things to come, as the equity market reaction seems to suggest, or merely an attempt to forestall an inevitable slowdown of the US economy. The Fed, for its part, couched its change as a response to the current troubles. They have hit the credit markets, in particular mortgage lending:

“Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action [intends] to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.”

FOMC Statement September 18, 2007

Fed Lowers Rate Target Conclusion

It certainly seems that the Fed is responding to pressure from the financial community. The financial community wants them to ease its monetary policy in the face of increasing difficulties in the credit markets. In addition, they want them to help those who recently financed their home purchase with an adjustable rate mortgage. Needless to say, this is probably not good news for the US dollar. As a result, the dollar continues to depreciate in value relative to other major currencies. After reading the FOMC statement, we realized there may be a rougher patch ahead.

Fed Lowers Rate Target

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Even Football Teams Play Defense!

What would a football game look like if each team just played offense? Not very practical is it? Unfortunately, that is how most entreprenuerers manage their business.

They often focus on increasing sales, new growth initiatives or physical plant expansion. But what happens when the game turns and the economy slows down? As the fallout from the subprime market works its way through the economy perhaps it is time to rethink your strategy.

Right now the economy could go either way; into a recession or bypass one altogether! Now is the time to shift your posture from an aggressive one to a defensive or , at the least, a neutral one.

So what actions might one take in a defensive or neutral position?

– slow down on hiring new employees (not stop, just slow down)
– pay down debt
– build up cash or liquidity
– complete existing projects
– postpone new projects (and fund out of cash flow)
– increase marketing efforts (often marketing gets cut in a recession. You should do the opposite!)

To paraphrase a quote of Warren Buffet: You never know who is swimming naked until the tide goes out!

Let’s say that you take defensive actions and the economy slows down? Your company would then be in an excellent position to resume its growth afterwards. If we do go into a recession then you are in an excellent position to weather the storm and gain market share from your competitors. Playing a defensive game is an important strategy in growing a company.

Even Football Teams Play Defense

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