Tag Archives | trends

Financial Ratios

See also:
Quick Ratio Analysis
Price to Book Value Analysis
Price Earnings Growth Ratio Analysis
Time Interest Earned Ratio Analysis

Use of Financial Ratios

Financial Ratios are used to measure financial performance against standards. Analysts compare financial ratios to industry averages (benchmarking), industry standards or rules of thumbs and against internal trends (trends analysis). The most useful comparison when performing financial ratio analysis is trend analysis. Financial ratios are derived from the three financial statements; Balance Sheet, Income Statement and Statement of Cash Flows.

Financial ratios are used in Flash Reports to measure and improve the financial performance of a company on a weekly basis.

Financial Ratio Categories

The following five (5) major financial ratio categories are included in this list.

  • Liquidity Ratios
  • Activity Ratios
  • Debt Ratios
  • Profitability Ratios
  • Market Ratios

Liquidity Ratios

Liquidity ratios measure whether there will be enough cash to pay vendors and creditors of the company. Some examples of liquidity ratios include the following:

Activity Ratios

Activity ratios measure how long it will take the company to turn assets into cash. Some examples of activity ratios include the following:

Debt Ratios

Debt ratios measure the ability of the company to pay its’ long term debt. Some examples of debt ratios include the following:

Profitability Ratios

The profitability ratios measure the profitability and efficiency in how the company deploys assets to generate a profit. Some examples of profitability ratios include the following:

Market Ratios

The market ratios measure the comparative value of the company in the marketplace. Some examples of market ratios include the following:

If you want to check whether your unit economics are sound, then download your free guide here.

Financial Ratios, Financial Ratio Categories, Use of Financial Ratios

Financial Ratios, Financial Ratio Categories, Use of Financial Ratios

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How to Produce Realistic Sales Projections

2016 has flown by and we are already in the fourth quarter! As we wrap up the year in just over a month, strategic planning for 2017 is happening in businesses across the world. As the person responsible for the bottom line, your job as a financial leader is quite simply to improve profits and cash flow. While that may sound easy, there are many nuances that are outside of your specific function (CEO, COO, CFO, Controller, VP, etc.) that you need to learn to lead your organization financially.

Working on 2017’s sales projections? Are you responsible for the bottom line? Download the free Goldilocks Sales Method whitepaper to learn how to build your sales pipeline and project sales accurately.

While there is still ample time left in the year, it’s never too early to start preparing for next year. If you’ve already started your projections for 2017, pull out your sales projections because there may be things you are missing. However, if you haven’t even thought about next year’s financial situation, here are some tips on how to produce realistic sales projections.

How to Produce Realistic Sales Projections

Producing realistic sales projections is difficult primarily because there are no guarantees. But you can avoid producing overly optimistic projections.

Why Most Sales Projections Fail

Most sales projections fail because of the financial leader’s inability to factor in potential risk and uncertainty. Just like in the children’s story Goldilocks, companies can easily miss the mark by producing projections that are either too pessimistic or too optimistic.

Start Doing Projections Now

Like I said, it’s never too early to prepare for what’s next. Are your sales projections realistic or optimistic? This would be the time to adjust any discrepancies in your financial projections. Don’t forget, 2017 is only a month and a half away!

Ask Questions

As you start working on your sales projections, it is imperative that you ask the following questions to your sales team, executive team, and financial team.

  • Where did the company meet the targets previously set for the company and where did the company fall short?
  • What did your team learn over the course of 2016?
  • What unfinished business will the company take into the new year?
  • What does success in 2017 look like?
  • What steps does the company need to take to increase the probability of success?

Starting Small: Unit Calculations

You can track future sales by calculating the expenses and comparing the number to unit sales. First, consider the expenses your business usually has: rent, loan payments, vehicle payments, utilities. Also include inventory and the equipment needed to produce the items. Tracking every expense for a future budget is crucial. Second, factor in the income sources. This can mean anything from time to units sold. Finally, compare the expenses to the sales. Do they change during the season? Use the year’s patterns to project next year’s performance.

Also take a look at your unit economics.  For every widget you sell, what is COGS and margin?  Is your margin sufficient to cover your fixed costs?  If not, then you should determine whether a pricing adjustment is in order, or if you just need to sell more of the item in order to cover fixed costs.

If you’re still not sure how to accurately project your sales, click here to access your free Goldilocks Sales Method tool. This tool allows you to avoid underestimating or over-projecting sales.

Watching Market Trends

You also need to factor in market trends. Preparing an external analysis will help you strategically plan your year and project accurately. Evaluate sales for companies in your industry, in your city, and your customer’s industry.

In Houston, the oil & gas industry has impacted the local (and even the national economy) over the past 18 months. Our 12-on-12 analysis has analyzed past 30 years of rig count and oil price data; using a guide like this allows our company to estimate how our and our clients’ business is going to fluctuate.

Be a Financial Leader

One of the common misconceptions about being a leader is that it’s all about delegating tasks.  While trusting your team and empowering them to make a difference is a crucial part of leadership, some tasks require your experience and expertise.

One of the most important ways you make a difference as a financial leader is by building bridges between departments in your company.  Since everything in a company is tied in some way to finance, it’s your responsibility to ensure that operations and sales have the information they need to be their best.

Don’t just ask your sales team for their sales forecast and plug it into your projections without another thought.  Instead, work with them to produce a realistic and attainable forecast that will guide the company over the next year.  The tighter your sales projections are, the better your financial projections will be.  As they say, it’s all about sales, the rest is just details.

How To Work With Sales

The idea of working with your sales team can sometimes be daunting. Financial people tend to be cautious and are more likely to understate projections. Salespeople can be very optimistic and will tend to overstate projections. If you ask your sales team to provide 2017’s sales projections, they may say that the company expects to grow 40% in revenue.

Sounds great, right?

Only if the facts bear it out.  Take a look at year over year sales reports. Over the past ten years, the company has only grown 20% year over year. Unless the company is releasing a new product line, etc., then you can make a calculated assumption that a 20% growth rate is more reasonable.

Educating your sales team on past sales trends and listening to them about what they’re hearing in the marketplace will allow you to produce more realistic sales projections than either of you might crank out on your own.

Manage Sales With a CRM

So you’ve worked with your sales team to come up with some killer sales projections.  You’re done, right?

If you’ve ever worked with salespeople, you know the answer to this question.  Giving a salesperson a goal but not holding them accountable for results is a recipe for failure.

What Gets Measured Gets Managed

In order to help them keep track of their goals and measure progress along the way, it’s a very good idea to invest in a Customer Relationship Management system (CRM).

One of the most attractive aspects of using a CRM to track customers and sales is the ability to compile information from many different communication channels (social media, website, telephone, radio, television, direct sales).  Even if your business is currently only communicating with customers in a few ways, it’s a good idea to have a centralized database with all your customer data so that your sales team can document customer preferences, communications, and goals.

Most CRMs will also function as a tracking system for progress towards sales goals.  Just the act of entering and tracking sales in a CRM can help keep your sales team focused on all customers and not just the ones that are causing the phone to ring right now.


Producing realistic sales projections should be a priority for your company, particularly at this time of year. If you need help creating an accurate sales pipeline, download the Goldilocks Sales Method. Let us how you think 2017 is going to look by leaving a comment below.

Produce Realistic Sales Projections

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

Produce Realistic Sales Projections


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10 Reasons Why You Should Bother With Networking

When I was a young accountant, I always wondered to myself… “Why should I bother with networking?” It seemed like a waste of time and money.  As I grew from an accountant into a business owner/CFO, I learned that networking is a vital function of doing business.

But for some, networking can be a daunting task.  Introverts, especially, can convince themselves that going to luncheons, breakfasts, or cocktail hours are unnecessary and pointless tasks that CEOs require of their financial leaders.  Most of all, they fear “death by networking.”

Networking Events: The “Necessary Evil”

Whether you’re looking for a job or finding new business, it will most likely come from your network –  not a resume pool or a cold call. If you’re looking for growth in any area, having well-honed networking skills is critical.

Instead of feeling like you have to bother with networking, be excited that you are in a field where people skills matter.

Remember… It’s not always what you know, but who you know that matters.

Seek Growth

By attending these networking events, you can expect growth in some form. This can include growth in profile, confidence, connections, business, etc.  Regardless of what your intentions are going into a networking event, you can seek and even expect growth.

bother with networking

HINT: Don’t Go For The Speaker

Whatever networking event you decide to attend, do not go just for the speaker.  It’s possible for a networking event to be successful for you even if you get nothing out of the speaker’s presentation.

One of the chief reasons I am a part of membership associations and organizations is simply to network. They could have the most spectacular speakers or the most boring of events, it doesn’t matter.  What matters most to me are the people that attend and the connections I make.

10 Reasons Why You Should Bother With Networking

#1 Make 6-12 Sales Calls in a 2-Hour Period

Sales calls are daunting for most of us, especially financial types.  Networking events provide the opportunity for you to knock out the equivalent of 6-12 sales calls in one short period.  Let’s face it, meeting someone face-to-face is totally different (and better) than picking up the phone and calling someone.

When you attend a luncheon or a breakfast, try to walk in with the expectation of getting work done. So many inexperienced business people fail to recognize that a networking event is simply a playing field where you can make your sales calls. Within that 2-hour period, you are able to meet with at least 6-12 people.

As an income producer in your company, utilize this opportunity to convert cold sales to warm or hot. Long gone is the tactic of just collecting business cards and not doing anything with them.

#2 Being There Gives You The Advantage

Being at a particular event may spur someone to give you an opportunity they would otherwise give to someone else.

Last week at a networking event, I found myself connecting a client of mine to someone else simply because she was at the luncheon. Previously, I was going to call her superior. Instead, she gained a hot lead and potential client by just being at this event.

Don’t be the person sitting at their desk suffering from FOMO (Fear Of Missing Out) instead of making connections.  You’ll never know what leads you may have missed out on if you don’t go.

#3 Confirm Your Assumptions About The Market

As a business owner or the financial leader of a company, you must stay ahead of your market. Since there is no magic genie that can predict the future for you, you have to make assumptions.

It’s not news that the oil & gas industry is not doing so hot.  As a business owner whose clients are impacted by this downturn, as an investor, as a native Houstonian, this matters to me.  I have to make assumptions about how long it’s going to last, what sort of impact it will have, how it will influence client behavior, etc.

Networking events are a great way to confirm your assumptions about the market.  Go in with your assumptions in mind. Start to listen before you speak.  There are a few questions that I ask at these types of events:

  • How’s business?
  • What are your thoughts on [insert market]?

People have the habit of talking about more than what you asked.  Take that knowledge and confirm or adjust your assumptions.  You know your assumptions are sound when you start to hear the same thing from people in different markets and industries.

#4 Identify Trends That Could Impact Your Company

bother with networkingIn addition to confirming your assumptions, start to identify trends that could potentially impact your company.  At any given event, it’s a safe bet that all those represented are working in a particular industry or market (middle market, oil & gas servicing, etc.) OR have the same purpose (turnaround, corporate growth, etc.).

#5 Polish Up Your People Skills

Some folks naturally have great people skills. They can charm the pants off even the worst of people! But some of us need to polish up our people skills.

Some of the most important people skills that any successful leader needs to have include:

The five characteristics are focused on one’s ability to be able to cultivate human relationships – professional or otherwise. By polishing up your people skills and further developing the skills listed above, you will be more successful in your professional and personal relationships.

If you’re an introvert (or a curious extrovert) and find yourself struggling to polish up your people skills, download your free Networking for Introverts guide here. 

#6 Connect with Connectors

bother with networkingConnectors love to network and connect people!  Networking events are their playground.  Not only do these “connectors” like to put two people together, but they see it as a challenge.  The more people they can connect together, the more their success meter goes up.

You don’t necessarily have to be a connector. But in order to successfully cultivate your network and make more sales, you have to connect with connectors. Think about it this way, any cable or cord is essentially useless unless it is connected to something. Put yourself out there and the connectors will naturally make the connections.

#7 Even If You Don’t Realize It, You’re in Sales

We often talk about how financial leaders and CFOs should see their position not as simply an overhead function but as an income producing function. In addition to your role’s function being different, it’s important to realize that you are in sales.

What do I mean by that?  Well, you have to sell ideas and initiatives to your key management team, Board, and your employees. As a financial leader, you are also responsible for selling your company to bankers, vendors/suppliers, and customers.  In order to truly elevate your role, you must add value to your company.  One of the ways you do that is by selling both internally and externally.  Networking helps you hone those skills and build valuable connections.

#8 Make New Friends

Not only are you feathering your professional nest by attending networking events, but you’re connecting with like-minded people and will have a friendly face for next time.  It’s highly unlikely that you are the only uncomfortable person in the room.  Seek out others who share your apprehension and strike up a conversation.  Chances are that when they need someone who does what you do, they’ll be more comfortable calling you rather than the “pushy salesperson”.

There are countless organizations that you can join that have monthly, quarterly, and/or bi-annual events that you can attend. Some of those that I have been a part of over the past 25 years include:

  • Turnaround Management Association (TMA)
  • Texas Society of CPAs (TSCPA)
  • Association for Corporate Growth (ACG)

Find your local chapter of any organization that you find would be beneficial for you. Continue to attend those meetings, and soon enough, you’ll find yourself with a group of friends.

WARNING: it’s easy to fall into a habit of only talking to the same people. Try to talk to 3 new people for every 1 friend you catch up with. This will continue to grow and cultivate your network.

#9 Get Free Advice

People naturally love to feel like their advice is valued, especially when they see themselves as your mentor. That’s the wonderful thing about networking events! You get free advice on literally anything from how to structure your financials to how to react to market fluctuations to where you should be eating lunch.

#10 If You Don’t Go, Your Toughest Competitor May Be Sitting In Your Seat

Similar to reason #2 on why you should bother with networking, if you don’t go to a networking event, your toughest competitor may be sitting in your seat.

It’s an unusual occurrence for me not to see a competitor at a breakfast or luncheon. This is probably one of the most important reasons why you should bother with networking. Your competitor, simply through them being present, can gain a competitive advantage over you.

Take your seat in the next luncheon. Sip your drink. Get talking. And start building your networking and your business. Remember… there is value in networking!

Need guidance in networking? Download your free Networking for Introverts guide and start building your network today. 


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

bother with networking

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Hiring Process is Getting Longer

hiring process is getting longerA recent article in the Wall Street Journal reports that employers are taking longer to pull the trigger on hiring decisions than in years past. According to the article:

  • the average job in 2014 sat vacant for 27.3 days before filled; this is compared to only 15.3 days five years ago
  • the average interview process took 22.9 days in 2014, up from 12.6 days in 2010

Hiring Process is Getting Longer

One of the trends cited as a possible cause for this phenomenon is the growth of non-routine jobs requiring judgment and creativity. As routine, task-based jobs are becoming automated, the need for highly-skilled workers with good judgment is increasing. To identify applicants best for a certain position, employers are increasingly relying on skills assessments, personality tests, and background checks to assess an individual’s “soft” skills.

Reasons for Longer Hiring Process

Another possible reason for additional time spent in the interview process is the increasing emphasis on culture. This has become a determining factor of company success. Companies such as Zappos, Google, and Starbucks have a highly-defined culture. Therefore, they spend a good deal of time with prospective employees to determine whether or not the individual will “fit”. Zappos offers all new employees $2,000 to quit.  From Zappos.com:

Yes, we do offer new hires $2000 to quit. We really want everyone at Zappos to be here because they want to be and because they believe in the culture. If they know they don’t quite mesh with our culture, we don’t want them to feel stuck here, so we give them an option. Less than 2% of all prospective employees end up accepting the offer.

A company so concerned with fit as to offer to pay people to leave might take their time finding the right person.

Across the economy, the average time it takes to fill open positions is lengthening.  So whether you’re looking for a job or seeking to fill an open position, expect it to take a while.

hiring process is getting longer, Reasons for Longer Hiring Process

hiring process is getting longer, Reasons for Longer Hiring Process

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More Questions Your Banker Wants Answered…

monopoly bankerIn a recent post, I talked about a conversation I had with our banker and the three questions she’d most like answers to.  In case you missed it, her questions were…

  1. How are you feeling about your business and the local economy?
  2. What is the outlook for the rest of the year?
  3. What are you doing about it?

More Questions Your Banker Wants Answered…

In response to the article, several of you reached out with questions of your own to add to the list.  Not surprisingly, the questions largely focused on what is going on in the Houston economy right now as a result of the decline in oil prices. Here were your thoughts:

1.  How is the current economic situation impacting your specific industry?

If you’re doing business in Houston you’ve likely felt (or will soon feel) the effects of the drop in oil prices.  Even if you’re not in the energy sector, your banker wants to know that you’ve taken a look at how the economic situation may affect you.

2.  What are the recent trends in your industry that impact your operations?

What other trends are affecting your industry?  Government regulation, increased competition, technology, substitution, etc.?  Your banker wants to know what your plan is to deal with these trends whether it entails mitigating risks or exploiting a competitive advantage.

3.  What are your 5- and 10-year goals and what are you doing today to achieve those goals?

It’s important to your banker to know where you’re headed in the long-term.  It’s easy to get wrapped up in the day-to-day operation of a business, but your banker wants to know that everyday decisions are made with the bigger picture in mind and not just reactions to the situation on the ground.

In the original article, I talked about the 5Cs of credit and how Character was the most important “C”.  Based upon your comments, I’d have to say that Conditions may be of greater importance (or at least more immediate) to you in the current economic climate.

Thanks so much for your feedback!  I’d love to hear what other questions you have.

Questions your banker wants answered

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Budgeting vs Forecasting

See Also:
Comparison Analysis

Budgeting vs Forecasting

The budgeting vs forecasting process has been a good discussion between financial professionals. The argument of whether they serve the same purpose or if one is better than the other has lead to some interesting debates. The term has been used several times interchangeably. However let’s explore why this is incorrect by identifying the budget vs forecast difference. When it comes to planning and grading the company’s financial health, they are both tools that can be used by companies. Their managers to do just that. However, the proper way to use them both is in concert with one another and not particularly as a substitute for one another.


What is budgeting, definition-wise? It is the process used to compose a plan or create an estimate during a prior year or at the beginning of a current year to help manage and control the income and expenditures of the company for that year. Some have even defined a budget to be a road map or financial guide that recognizes the income of the company, while detailing the expense allowances with a not-to-exceed expectation for that given year. Now let’s examine the definition of forecasting to compare the differences between the budgeting and forecasting process.


Forecasting is another financial tool commonly used to help determine the financial status of a company. The meaning of financial forecasting is quite different from that of budgeting. Where the budget is used as a financial planner, the forecast uses this plan and compares it to the current financial direction of the company. They do this to predict where the company will end up by the end of that year. In other words, use the forecast to see if the company will meet or exceed the expectations from the budget allowing the managers and controllers to set future goals. They also use forecasts to identify trends that are used to grade the company’s financial position. They both seem to be very resourceful tools. Instead of comparing financial forecast vs budget, the more important discussion should be which tool is more effective.

Which is More Important?

So which tool in the financial forecast versus budget debate is more important? Let’s answer a few questions first. Can a business run productively without a budget, a plan of action for each year? Some do. However, to run a successful business without monitoring your financial status throughout the year to predict its financial grade by the end of the year can be very difficult. Budgeting can be a good tool to use to help plan the future of the business; however a greater predictor of future behavior is past behavior. The purpose of investing time to create a financial forecast is to predict the future based upon certain assumptions. In addition, use the past to defend those assumptions. Both tools are necessary for a business to be successful. In short, a budget sets the company’s goals while a forecast defines its expectations.

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

budgeting vs forecasting

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

budgeting vs forecasting

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