Tag Archives | management

Budgeting: It’s About Achieving Success

budgeting

Ron Rael, author of 13 ½ Strategic Ways of Winning the Budgeting Wars, once said that, “To achieve success in anything, you need two ingredients: a target to aim for and a way to measure your progress towards it.” Budgeting is all about achieving success in business. When you improve the budget process, you are able to foster both empowerment and accountability. Eventually, it will lead to a better company.  Although initiating change in your budgeting process will be challenging, it will further demonstrate your financial leadership.

The Most Common Budgeting Problems

The reason why you may have not seen much success come from your budget is because of the following common budgeting problems. First, the goals that are established before the budget is created are either too easy to reach or are simply unachievable.

If you know your economics, then you can avoid potential unrealistic goals or assumptions. Click here to download the Know Your Economics Worksheet to shape your economics to result in profit.

Then the budget is built on faulty or unrealistic assumptions. If the assumptions are correct, then maybe not everyone agrees on the assumptions or principles. This disagreement of what to build the budget on results in a dysfunctional team.

After the budget is built, there is often little to no feedback from management about the budget. We have seen this time and time again in companies. Those not involved in the budgeting process simply don’t care about the budget. They think that because they are not the CFO or Controller, it’s not their job. But everyone in an organization should care about the budget.

Additionally, when the budget is completed (usually after weeks of non-stop focus), it is filed away. It is rarely taken out and use in the daily strategy of the company. There is a lack of follow up.

When leadership has to meet with shareholders, stakeholders, etc. regarding the budget, they realize that they haven’t used the budget at all. Then they go to any means to achieve their budget. This manipulation defeats the purpose of having a budget. We suggest to design a budget that cannot be manipulated.

If you are thinking that the most common budgeting problems are more like cultural issues, then you’re correct!

Top 2 Budgeting Problems

Everything we have already said concerns the entire company. But the majority of our audience consist of CFOs and Controllers. The two problems that impact CFOs, Controllers, and budget directors the most include hidden agendas executives may have, the lack of commitment from executives for having a budget, and executives seen budgets as the CFO’s job. The responsibility of the budget is not solely reliant on the accounting department or CFO.

How Businesses Can Prepare for Natural DisastersHow to Budget Successfully

Budgeting successfully requires you to transform how you think about budgeting overall.

Use It As Decision-Making Tool

If you want to budget successfully, then you need to use your budget as a tool for decision making. It is not some disconnected document that has little to do with the company’s actual business. Instead, it should be a living and breathing part of your decision making. Plus, it is more effective when you use it to make decisions. When people ignore it or play games with it, your budget becomes ineffective.

Additionally, understanding the need to improve the quality of decision making and making it happen are two different animals. What you get all depends on the leaders’ commitment and attitude.

Use It As Management Tool

Budgeting is a very important management tool for achieving lasting success. A budget should establish the discipline to set up a plan. But you must also adhere to the plan. Furthermore, this management tool always you to measure your progress, and ultimately, your success.

“Without a yardstick, there is no measurement.  And, without measurement, there is no control”
– Pravin Shah

Issues Are a Result of Culture

We said it earlier, and we’re saying it again because it’s that important. Most budgeting issues are a result of an organization’s culture. Issues that lead to a poor quality budget process mean that these problems  already exist within the organization ALL THE TIME!

Cost Associated

Everything has its cost! The budget is no exception. Budgets take work! They are not easy to implement nor are they easy to manage. Some of these costs include the following:

  • A culture that supports planning
  • Top management’s commitment
  • A reliable and timely reporting system
  • Agreement on principles and assumptions
  • Reliable business information
  • Structure and defined responsibilities

In addition, there are other costs associated with budgeting that could impact the bottom line. If employees are not conserving costs and making the most of opportunities, the bottom line will suffer. If leaders are not investing in their tangible and intangible assets equally while employing them to their fullest potential, the future bottom line will suffer.

Require Specificity

The budget and the plan it drives from is only effective when it leads to specific actionable and measurable activities and generate stakeholder value. Therefore, a budget must require specificity.

Assumptions Drive Everything

Also, your assumptions drive everything. Therefore, it is crucial that everyone be on the same page regarding assumptions in relation to decisions on what is important in your budget.

Governance of Budgeting Process

When your leadership team establishes governance in your organization, they are deciding how to best use all their resources to accomplish the purpose or mission.

Governance Principles

Use the following governance principles in your budgeting process. A reality based budget and planning system that enhances accountability is necessary for the good governance because it increases transparency. Furthermore, the key factor in a realistic and honest budget is people and their accountability. A well conceived and thoughtful budget improves the governance demanded by all stakeholders. In addition, the budget is a reflection of the importance that your executives place on governance and ethical conduct. Every game played with the budget is actually a breach of the organizations Code of Ethics.

CFO’s Role in Making the Bottom Line Commitment

 The CFO is essentially the CEO’s cheerleader! The CFO inspires higher level of performance.  The greatest challenge is to ensure that the strategic objectives and operational plans are adequate and inspirational enough to achieve the leaders’ desired financial objectives. The leader’s three plans, when combined into a cohesive strategy, will generally lead to success; however you define it. Furthermore, the CFO and executive team are the guardians of all assets – physical, financial and human ones. Use these assets to implement the plan and achieve the goals!

 CFO’s Discipline

Having the discipline to build a healthy budget, and having the budget instill discipline across your firm has many benefits. Not only will your budget properly serve as a management tool, but the benefits of discipline will filter over to other areas of your operation which will lead to efficiency and profitability. The next step in achieving success through your budgeting is knowing your financials or economics. If you want to shape your economics to result in profit, then click here to download the Know Your Economics Worksheet.

budgeting

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

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

Click here to learn more about SCFO Labs


budgeting

1

Idea Management in Companies – “That Squirrel Will Kill You!”

idea managementFifteen years ago, I had a dog named Killer. Killer was really cute – a Yorkshire terrier – and was about 15 years old. Killer hated squirrels with a passion. One day, he saw a squirrel across the street and took off after him. Before we could catch him, he was hit by a car and passed away.

I apologize for the sad story, and I know that probably wasn’t something you expected to read from The Strategic CFO. The purpose of this story is to tell you that there are “squirrels” in your business that will kill you, too. Idea management in companies is more difficult than you think. In our company, we have a saying. Whenever someone shares a new idea that is irrelevant to our current projects, we call out “Squirrel!”. We do this to do two things: identify that it is in fact a squirrel and refocus our attention so that we don’t get distracted from our current projects. We don’t spend all of our money doing every new idea that we think of. This may even be an issue in your own company. Let’s explore why…

Why “Squirrels” Will Kill You

Squirrels are tangible, worth pursuing, and bring value. But what you may not know is that those new ideas may hurt you more than they help you more often than not.

Leaders are Innovative & Ambitious

Let’s say you’re in a room full of executives and business leaders, pursuing a project that you’ve worked on for months. Suddenly, one of your colleagues brings up the problem with the vending machine. The vending machine problem has nothing to do with your project. Another colleague chimes in and agrees with your other colleague about the vending machine. Now you’re all talking about the vending machine, and the initial project is pushed again… another 2 months.

That squirrel just killed your chances of successfully finishing that initial project.

If you’re an entrepreneur or a business leader, creativity is in your blood. You can’t help but think of new ways to grow your business, or fix small problems when they turn up. At the same time, squirrels distract you from your goals. “Chasing squirrels” is especially dangerous for entrepreneurs and businesses that have been operating for less than 5 years. Try to focus on what’s really important. Remember…. if you’re always chasing squirrels, you’ll never get down the street. This is where new idea management in companies comes into play.

Take the 40,000 foot level view when looking at projects! There are more squirrels than can be caught. Download our free 7 Habits of Highly Effective CFOs and learn how to take your financial leadership to the next level!

Most Ideas are Worth Pursuing… One Day

Just because you have a main project doesn’t mean you can’t have ideas. If you have a useful idea, but it may not be related to what you’re currently working on, write them down! Writing down your ideas is more than a list; it’s a goal that you can one day pursue (and maybe should pursue).

idea managementHow to Manage the “Squirrels”

Managing new ideas in companies should always be organized with a path in mind. How do you address squirrels so that they don’t kill your organization, you, and/or your momentum?

The action plan is the best idea management tool.

What is an Action Plan?

Our biggest recommendation is to make an action plan for your company. An action plan is a tool to manage the tasks to be achieved within a certain period of time. This tool isn’t solely for the leaders of a company to watch their employees. The action plan serves as a communication tool between ownership and staff, which then ensures accountability within a company.

Idea Management in Companies with Action Plans

Many of my clients, and my own employees, can attest to The Strategic CFO action plan tool (can be found in the SCFO Lab). When managing the “squirrels” in your company, your efforts shouldn’t stop at merely having a tool. What makes it effective is how you use it. Here’s how we all learned how to use an action plan effectively:

List Your Tasks 

It’s okay to brainstorm and unleash your ideas. In fact, we highly recommend you do this. But you can let the ideas flow out in a constructive manner that will prevent you from derailing off the tracks. List out any ideas, from small to big; from things you want to accomplish today, to milestones you want to accomplish by 2019. The sky’s the limit!… as long as the ideas are realistic and attainable.

Assign and Prioritize This Task

Now is the time to organize your ideas. Which tasks are easily attainable? Which tasks serve a purpose? Which tasks align with other tasks? And finally, who will complete these tasks? are all questions you should be asking yourself when completing this step. Color code, write notes, create labels… do what you need to do to organize your thoughts. As you do this, also try to map out how you’re going to accomplish a goal (because some goals need sub goals in order to accomplish them).

Update Progress and Priorities

Oftentimes, plans don’t always happen like you had originally expected. It’s normal to move around certain tasks to make room for more pressing ones. Just make sure that you don’t move them around too much… It might end up being a “squirrel.” It’s always a good idea to update your progress as well. When you complete a task, mark it as finished and don’t delete it.

Leave What You Have Already Accomplished

Leaving the completed tasks is crucial because the management needs to review progress trends, and quite honestly, it also boosts morale within the company. If you constantly remove the accomplishments, it will feel like your company has gotten nowhere. On the other hand, if you leave your completed tasks, you can see what works and what doesn’t work. You’ll also see how fast certain tasks are completed, and the work habits of your staff and yourself.

idea managementConclusion

Constant ideas can help your company, but they can also hurt your company. Having an action plan for your company is important not only for your staff, but for yourself. Action plans, or ideas with a plan in mind, organize the company’s thoughts and ideas in a more manageable and realistic fashion. Ask yourself: Are these ideas helpful right now? Will they be helpful in a couple of years? If you answered “no” to the first question, the ideas are squirrels. If they’re not helpful ever… then those are just bad ideas. Take care of your company, or else it might end up like Killer.

To learn more financial leadership skills like managing your company’s ideas, download the free 7 Habits of Highly Effective CFOs. Find out how you can become a more valuable financial leader.

idea management

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan to manage your company before your financial statements are prepared.

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

Click here to learn more about SCFO Labs

idea management

0

What The CEO Wants You to Know

Book: What the CEO Wants You to Know

In This Book You Will Learn

• Learn how your company really works
• Developing business acumen
• Tackling complexity
• Viewing business like an investor would
• How to execute successfully

Why this book is on our list?

From notable CEOs to street vendors – they all share a common secret to success by developing business acumen and learning to apply these fundamentals to all types and sizes of business. What the CEO Wants You to Know How Your Company Really Works recognizes that every business is the same inside. More specifically, all CEOs focus on cash generation, return on assets, growth, and customers. Learning how to block and tackle with these tools and stay out of the weeds comes with experience. Good CEOs cut through the complexities and bring clarity and simplicity. They look at businesses like investors would – investigating inconsistent PE multiples by revisiting the fundamentals. And most importantly, CEOs know how to execute.

Therefore, if you want to truly understand what the CEO wants you to know, the first key to getting things done is putting the right people in the right jobs, not shying away from conflict, and knowing when to make step changes along the way. Coaching is also a key success factor to execution – both from a business and behavior perspective. Synchronization and integration of efforts along with building effective social operating systems are also keys to successful execution.

Understand These Concepts

To learn how your company really works, you must understand the concepts of cash generation, return on asset, growth, and customers. Cash generation is the difference between all inflows and outflows of cash into the business in a given time period. In larger organizations this concept become more complex with the introduction of credit but in the end the complexities can be distilled back to this simple concept. Return on Assets (“ROA”), which is similar in concept to Return on Investments (“ROI”) and Return on Equity (“ROE”), “…tells you how much money is coming into your business from the use of your assets, from the investments the business has made, or from the investment shareholders have made in the company (equity).” The return is a function of margin and velocity – that is “the faster the velocity, the higher the return.”

What a CEO wants you to know is that growth is vital to prosperity. It should be profitable and sustainable. Many often measure growth by a concept called Shareholder Value Added (“SVA”). Effectively SVA measures whether the business through its management team is earning “…a return that is greater than the cost of using other people’s money.” However, to gain a true perspective of the quality of growth, you will need to drill down into the details of cash generation and return on assets. Focusing on business acumen is also how successful CEOs find opportunity for profitable growth when others cannot. The last concept focuses on knowing your customers. What the CEO wants you to know is that knowing your customers means knowing their preferences and what they are dissatisfied with. Direct contact with the customer often provides greater insight then solely relying on focus groups and other market research.

Author: Ram Charan

Ram Charan also spends time focusing on the people side of the equation. This includes putting the right people in the right jobs and dealing with mismatches. With regards to coaching, “…a true leader of people expands their capacity by helping them channel their skills, develop their abilities, and release their positive energy.” The focus should be both on the business side and personal behaviors. What the CEO Wants You to Know also dives into the subject of how to make groups more decisive by designing social operating mechanisms to synchronize efforts and link them to business priorities.

For example, “in a small organization, everyone knows everything that is going on….but as an organization grows and you have dozens, if not hundreds, of people working together, synchronization becomes a greater challenge.” Structures are created to encourage social interaction increasing complexity. The challenge in larger organizations is simplifying communications and unify efforts and priorities. Order Now.

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

what the ceo wants you to know

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab.

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

Click here to learn more about SCFO Labs

what the ceo wants you to know

0

Management Definition

See Also:
Activity Based Management (ABM)
Warning Signs Of A Company In Trouble

Management Definition

What is Management? Management definition is a single or group of individuals who challenges and oversees a person or collective group of people in efforts to accomplish desired goals and objectives. Furthermore, the definition of management includes the ability to plan, organize, monitor and direct individuals. The management definition is also a person or collective group who possess the executive abilities to lead a group through hardships, aspiring to meet an organization’s purpose and visions.

Management Functions

With an understanding of what is management, there are several management functions and roles that are needed in the management function of planning for an organization’s success. Management function examples include the following:

Organizations must identify the viable management functions organizing for growth and future success. They should also develop a business management structure to separate different management functions and roles. However in smaller companies, individuals may often take on multiple management functions. In comparison, larger firms will segregate different job management functions leading for organized management functions and skills.

Business Management

Organizational best practices are the business management description guidelines frequently outlined in standard company policies and procedures. Furthermore, a business manager reinforces these aids to ensure specific job functions are carried out in a preferred business approach. Organizations may hire a business manager for one or multiple functional areas to provide specific industry or product knowledge and have overall responsibility for business operations. Business manager responsibilities may include supervising an entire company, division, or territory to generate the highest revenue return from business activities. Furthermore, some of the business manager’s duties include the following:

  • Managing a team
  • Providing industry or product expertise
  • Meeting desired performance measures

If you want to learn more financial leadership skills, then download the free 7 Habits of Highly Effective CFOs.

Management Definition

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab.

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

Click here to learn more about SCFO Labs

Management Definition

0

Management Accounting

See Also:
Statement of Financial Accounting Standards (SFAS)
Management Audit
Goodwill Accounting Term
Cost Accounting
Accounting Principles

Management Accounting Definition

The management accounting definition is accounting with the specific purposes of informing managers. Management vs financial accounting: financial accounting is mainly for the purpose of informing outside parties – shareholders, lenders, creditors, and government. Ultimately, company controllers including the CEO, other executive officers, and department leaders use managerial accounting.

Management Accounting Explanation

Management accounting explains the up-to-date financial standing of businesses to leading parties. As such, it has no format which is required by law: management accounting best practices showing vital information related to control and leadership. Though reports follow generally accepted accounting principles, they are made by internal controllers and for internal controllers.

Management accounting concepts and techniques include a few pieces of information that are somewhat standard. Sales, costs, profits, available cash, accounts receivable and payable, assets, liabilities, inventories, and certain statistical analyses. Additionally, they contain business or industry specific factors. In a contracting firm, stats will include work-in process, raw materials, and more. For an e-commerce store, website statistics will be of utmost importance. For every business, you must include unique measurements to show the effectiveness and growth of the business.

Management Accounting Example

For example, Raj is the CFO for a manufacturing company. Everyday, Raj deals with financial decisions that could make or break the company. As a result, he advises the business from the perspective of its profits, cash standing, and costs. Raj fills an important role in the business.

Raj must create a managerial accounting report for the business. Company controllers have asked for this in the process of a quarterly review. So, Raj must make a quality report so that the company can make educated decisions from it. He must attack management accounting from a strategic approach.

Raj has compiled the company financials into the report. This part was not difficult since there is a precedent on this that has been continued for decades. However, Raj must choose the important variables related to their new business operations. These relate to the two following fields: online commerce and a new, very large client.

Raj decides to keep the report more relevant to his duties as a CFO. Instead of including the analysis of the website and deals with the recently acquired big name client, he instead focuses on how these operations relate to company finances. He includes only this information as he finishes his report.

Conclusion

When he is finished, the board of directors loves his work. Raj has made the right decision. Furthermore, the company has other resources allocated to find answers to questions unrelated to finance. By truly understanding his role in the company, Raj has secured a professional name, kudos, and even a raise. Raj thanks his accountancy training as he moves on to bigger and more important projects.

If you want to learn more financial leadership skills, then download the free 7 Habits of Highly Effective CFOs.

Management Accounting

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab.

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

Click here to learn more about SCFO Labs

Management Accounting

0

Agency Costs

See Also:
Are You Collecting the Data You Need to Run Your Business?
Average Cost
Sunk Costs
Restructuring Expense
Joint Costs
Commercial Agents

Agency Costs

Agency costs are internal costs incurred from asymmetric information or conflicts of interest between principals and agents in an organization.

In a corporation, the principals would be the shareholders and the agents would be the managers. The shareholders want the managers to run the company in a way that maximizes shareholder value. The managers, on the other hand, may want to run the company in a way that maximizes the managers’ own personal power or wealth, even if it lowers the market value of the company. These divergent interests can result in agency costs. There are three common types of agency costs: monitoring, bonding, and residual loss.

(NOTE: Want the Pricing for Profit Inspection Guide? It walks you through a step-by-step guide to maximizing your profits on each side. Get it here!)

Types of Agency Costs

When the principals attempt to monitor or restrict the actions of agents, they incur. monitoring costs For example, the board of directors at a company acts on behalf of shareholders to monitor and restrict the activities of management to ensure behavior that maximizes shareholder value. The cost of having a board of directors is therefore, at least to some extent, considered an agency monitoring cost. Costs associated with issuing financial statements and employee stock options are also monitoring costs.

onding costs. Furthermore, an agent may commit to contractual obligations that limit or restrict the agent’s activity. For example, a manager may agree to stay with a company even if the company is acquired. The manager must forego other potential employment opportunities. Consider that implicit cost an agency bonding cost.

Residual losses are the costs incurred from divergent principal and agent interests despite the use of monitoring and bonding.

Calculate agency costs when setting prices and start pricing for profit. Download the free Pricing for Profit Inspection Guide.

agency costs

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

agency costs

0