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5 Tools You Might Not Be Using (But Should)

Historically, CFOs have relied upon traditional financial statements to guide their decision-making.  Today, the prevalence of more sophisticated accounting systems and the demand for more information more quickly has given rise to the need for different kinds of reporting.  Here’s a list of 5 tools that can help give you manage cash, identify areas for improvement, and plan for the future.

5 Tools You Might Not Be Using (But Should)

Daily/Weekly Cash Report

The Daily (or Weekly, depending upon how tight cash is) Cash Report gives a snapshot of the daily/weekly cash position as well as a forecast of expected cash inflows and outflows for the day/week.   In a cash crunch, using this tool daily can be a lifesaver.  Highlighting projected cash shortfalls can help focus efforts on collecting receivables or generating revenues.  Once the cash crisis passes, preparing this report at least on a weekly basis can help the CFO determine if the cash balance is growing, or if it is being used elsewhere in the business.

Click here to learn more about the Daily Cash Report.

Flash Report

The Flash Report, or financial dashboard report, provides a periodic snapshot of key financial and operational data. This one-page report can be prepared on a daily, weekly, or bi-monthly basis, depending upon the availability of information and needs of managment.  It is divided into three sections:  Liquidity, Productivity, and Profitability.  The Liquidity section focuses on operating cash flows and the cash conversion cycle.  The Productivity section lists key performance indicators (KPIs) to track changes in operating productivity.  The Profitability section shows an estimate of profitability for the period.  The key to using this report effectively is not to make it a mini-P&L, but to only capture and track that data that is useful in decision-making.  Otherwise, it’s too cumbersome to prepare and gets put on the back burner.

Click here to learn more about Flash Reports.

Projections

Most companies prepare an annual budget, but not all prepare projections.  What’s the difference?  A budget sets the company’s goals while a projection defines its expectations.  Budgets are static and are often useless shortly after they are prepared.  By contrast, projections are dynamic and adapt to changing conditions and expectations.  Projections should be updated with actuals monthly and forecasted numbers (such as sales) should be changed going forward as better information is obtained.  While many companies prepare projected income statements and possibly cash flow statements, few prepare a projected balance sheet. A projected balance sheet is a key tool used by lenders when deciding whether to invest in a company.

Click here to learn more about Projections.

Fluctuation Analysis

A Fluctuation (flux) Analysis, also called common-size financial statements, looks at changes in the income statement or balance sheet expressed in dollars and as a percentage of sales or total assets.  Prepared annually or as needed, this report looks at changes over a four- or five-year period and is useful to identify “slippage” or small changes in accounts over the course of years that might not show up when looked at as raw dollars only.  For example, a 2% increase (as a percentage of sales) in COGS wages over a four year period may not seem like much.  But in a $50 mm company, that’s a million dollars of slippage!

Click here to learn more about Fluctuation Analysis.

Ratio Analysis

If you’ve ever put together a loan package, you’re probably familiar with Ratio Analysis.  Bankers love this tool! They can use it to compare your company to others in your industry and market using established benchmarks.  It’s also a useful tool for CFOs for the same purpose.  Is your company as profitable as it should be?  Sometimes it’s tough to know unless you’ve compared it to others in your industry.  Looking at key financial ratios is also useful to track trends within the company year over year.  If your banker is looking at it, shouldn’t you?

As you can see, there are many other tools besides the financial statements that can help you make better, more timely decisions and plan for the future.   Which tools are you using in your business?

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs. 5 tools you might not be using

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

5 tools you might not be using

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Why Do Most Financial Projections Fail?

Do you know the number one reason most financial projections fail? It is because sales are over estimated!

Why Do Most Financial Projections Fail?

This time of year we are busy working with clients preparing projections for the next year. What we find is it is very difficult for clients to do an accurate financial statement projection if they can’t project sales. Working with companies to project the top line of the financial projections is the hardest part. Once you have the top line the rest of the projections fall into place based on historical numbers.

How To Project Sales

So how do you project sales? We generally start off with last year’s sales numbers. We ask ourselves do we think they are going to increase or decrease? If so, then by how much? We determine by product line how much sales we need to be profitable. We look at recent sales trends and review them with the sales team. Finally, we prepare a backlog schedule with identified sales on a monthly basis. The greater the backlog identified, the greater the accuracy!

When projecting sales it is important to be reasonable. You should strive to “under promise and over deliver”. Often the management teams strives to set the bar high for goal setting purposes. You don’t want to shoot yourself in the foot with your banker if you miss you projections by a wide margin! It is better to come in a little above your projections rather than quite a ways below your number.

What has been your experience in projecting sales?

If you need help creating an accurate forecast, then download our free Goldilocks Sales Method whitepaper to project accurately.

most financial projections fail

Strategic CFO Lab Member Extra

Access your Flash Report Execution Plan in SCFO Lab. The step-by-step plan will help you manage your company before you prepare your financial statements.

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

Click here to learn more about SCFO Labs

most financial projections fail

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Creating a Flash Report

The finance function of an organization can contribute significantly to a company’s operating success. The key is how the financial leadership communicates with sales and operating staff. Creating a flash report can make a hug difference in your communications

Creating a Flash Report

A proven tool to enable this communication is the flash report, or dashboard.

The flash report details the organization’s liquidity, productivity, and profitability. It is meant to be a current summary of the company’s performance as a whole, as well as how the efforts of the company’s individual departments tie to productivity and profits.

The flash report differs significantly from the standard monthly financial statements. It’s purpose is to show a company’s leadership where they are, and where they are headed, as opposed to where they have been. It highlights strengths, weaknesses, as well as trends in each.

Does your organization use a flash report? If not, why not?

Creating a flash report has never been easier.

Now’s the time for your company to look forward. Set up a flash report today!

To learn more financial leadership skills like creating a flash report, download the free 7 Habits of Highly Effective CFOs. Find out how you can become a more valuable financial leader.

Creating a Flash Report

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

Creating a Flash Report

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The 13 Week Cash Flow Report

13 Week Cash Flow Report Definition

The 13 Week Cash Flow Report is defined as a method to forecast the cash flow needs of a company. It is commonly used in businesses with complicated cash cycles. This tool is especially useful in a situation where active cash management is required. Use the 13 Week Cash Flow Model as a “big picture” tool to see how much cash is required on a forward rolling basis. Having a clear sense of your working capital needs and when you need it gives added impetus to collect cash and/or to generate revenue.

This tool is also helpful when used in conjunction with the daily cash report. It is helpful to think of the 13-Week Cash Flow report as giving you the strategic big picture needs, while the Daily Cash Flow Report provides a more tactical level measure of the firm’s cash position.

13 Week Cash Flow Report Meaning

For a 13 week cash flow report, meaning the report used to project cash flow expectations into the coming weeks, a strong understanding creates the foundation to make valuable models. There are several key areas of information that you will need to obtain, including the following:

  • Beginning cash balances
  • Estimated cash receipts
  • Estimated payroll and taxes
  • Note/lease payments
  • Estimated operating expenses
  • Payments on LOC-ML
  • Payments on old A/P.

Use the 13-Week Cash Flow Report in the active cash management of the company. The CFO/Controller should update and review the tool on a weekly basis.

The CFO/Controller should prepare and update thirteen week cash flow model. The CFO/controller should be the one to setup and prepare the template. Information to populate the template will most likely reside with the persons in Accounting and HR.

Maintain and update it on a weekly basis.

More at WikiCFO.com

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Capital Budgeting Methods

Capital Budgeting Methods

“Most small to medium sized companies have no idea how to approach capital investments. They treat it as if it were an operating budget decision rather than a long-term, strategic decision that will impact their cash flow, efficiency of their daily operations, income statement, and taxable income for years to come. They need your help understanding the importance of and then making the right capital budgeting decisions.

Capital budgeting decisions relate to decisions on whether or not a client should invest in a long-term project, capital facilities and/or capital equipment/machinery. Capital budget decisions have a major effect on a firm’s operations for years to come, and the smaller a firm is, the greater the potential impact, since the investment being made could represent a substantial percent of the firm’s assets….”

More at WikiCFO.com

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Durability Bias in Business

Durability bias in business is the tendency of people to project recent trends or occurrences into the future. If it happened in the past then it must happen in the future. The term is often used in behavioral science and forecasting.

Durability Bias in Business

How does durability bias apply to business? Often business professionals project short term trends into the future. They believe that the recent good times will last forever, conversely, they also believe the bad times will go on indefinitely!

The stock market is a good example of durability bias in action. When the market is booming you start seeing books titled, “Dow 20,000”, hitting the bookstores. People started buying stocks and an euphoria took over. Last fall the opposite happened. Stocks started dropping and soon we were in a financial crisis.

For the past six months the stock market has gone from maximum pessimism to the beginnings of optimism. Stocks have risen 21% in the past six months and over 39% since the low on March 9th. Right now the durability bias is on the downside, however, as these gains continue the bias will shift to the upside.

So what is your durability bias telling you? Are you running your business as if the tough times are going on forever or are you investing in your people and infrastructure to take advantage of the recovery?

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