We all realize that leadership is the key to successfully moving a business forward. This is the case during good times, and even more so during challenging times.
Successfully moving forward during turbulent times is often accomplished by brainstorming alternative actions. Alternative actions can include various strategies that I categorize as offensive, hold, or defensive strategies. Examples of offensive strategies can include refocusing the business into newer product/service lines or expanding into new markets or new market platforms. Hold strategies are relatively obvious, and I often call them “staying the course.” Defensive strategies often include alternatives in making the business lean and cutting current expenses.
Many times the ultimate choice in strategy for the business is in the hands of the CEO and, depending on the structure of the business, also its board and the executive team.
As a former CEO, reflecting on when I was facing turbulent times, I found it exceptionally valuable to include the executive team in this process. The main reason why I did this is that it promoted buy-in to the process and ensured alternatives were vetted from different angles. For this inclusion strategy to be successful, the executive team also has to feel safe and valued in bringing up differences of opinion during brainstorming sessions. Ultimately, the stronger the competency and experience in the executive team and board, the more valuable and accurate the input is.
Today, as a fractional CFO at Nperspective, I realize that we support businesses during turbulent times in a number of critical ways. One of the most valued services we provide is helping the executive team understand the financial consequences of any action they choose. This is accomplished by working with the executive team and understanding each course of action contemplated and forecasting the financial implications of these actions. Understanding and modeling the financial outcome for each course of action contemplated is critical in choosing the right course to bring the business back into prosperity.
The process of modeling forward or forecasting and using “what if scenarios” is one of the most important skills an experienced CFO brings to the businesses we serve. A CFO’s experience is also one of the biggest differentiators between a strong technical accounting person such as a chief accountant or controller and an expert CFO. The forward-looking and modeling skill is often critical in choosing the best outcome when a change in strategy is required.
Further, the process of forecasting alternative courses of action requires experience with forecasting and budgeting tools. These forecasting tools often start with a sales forecast and a related sales/marketing budget. The results from the sales forecast and budget then flow into a forecasted operating/production budget. Other budgets can provide value during this process and may include a capital expenditure budget and a capital raise the budget. These budgets are then used to prepare the critically important cash flow budget and forecasted financial statements.
All budgets and forecasts can be prepared on a dynamic basis or a static basis. When the business is facing challenging times, the dynamic basis is the preferred choice. This dynamic basis of forecasting and budgeting requires constant review, assessing, and comparing actual results to forecasted projections. This variance analysis is then used to assess the forecasted models at least every two to four weeks, and often weekly if the company is restructuring operations. This process is also known as a living forecast/budget.
Having a go-forward strategy is critically important for all businesses facing turbulent times. If you want to move forward wisely, being proactive and detailed in forecasting the future is a proven method to drive favorable results. Understanding the financial implications of a strategy before implementing it is critical to identify the path that is most likely to support the survival and growth of the business.
This skillset is found in experienced CFOs and is often one of the most valuable tools in driving profitable outcomes for businesses and organizations. Forecasting, budgeting, and analyzing the variances are the proven tools that drive results. This process clearly identifies areas of the business that are overperforming, performing as planned, or not performing to expectations.
At Nperspective, we offer affordable services for small and mid-size businesses that benefit from an experienced CFO. Our fractional engagements range from as little as a few hours a week that can support integrating routine budgets and forecasting in any business. This solution ultimately offers small and mid-size businesses highly experienced CFOs on a part-time basis at a fraction of the cost, providing highly important services like forecasting and budgeting at an affordable cost for smaller companies.