Archive for the ‘Financial Management’ Category

Forecasting is a Learned Skill

Wednesday, March 7th, 2012 by Troy Schrock

Forecasting is a learned skill, and as such, it can be taught and improved over time.  It also will never be perfect.  Yet, I often see CEOs and executives giving the financial staff a terrible time when actual results differ from the forecast.  I have also seen many financial personnel terrified to provide a forecast to the executive team because it is built on assumptions rather than “facts.”  By nature, financial personnel tend to be more averse to making mistakes than others.  They want their numbers to be right, but forecasts are never “right” in precisely matching actual results.  No one can absolutely predict the future.  A forecast can only provide a directional view based on the best knowledge available.

Forecasting is not limited to financial numbers.  Every discipline has some kind of key activity or metric to forecast, so CEOs, CFOs, CIOs, COOs, and any other kind of business leader ought to be able to understand the uncertainty and apprehension involved in forecasting.

You can only become excellent at forecasting by working on it.  Mistakes will be made.  Through practice, you will gain a better understanding of the drivers of the key activities which are drivers for the financial results.  Not only will the accuracy of your forecasts improve over time, but you will also gain a deeper understanding of your business (which is the greatest value of forecasting).

For more insight on financial forecasting, consider reading Before You Hire a CFO


The Power of Incentives

Thursday, August 19th, 2010 by Dave Dudon

Cutting costs while preserving a productive culture can be a struggle.  After all, cost reduction – especially when it requires layoffs – is not a recipe for increasing morale.  However, you may be able to cut costs in a way that not only minimizes pain, but also increases morale.  Just look at the incentives.

Even people of high integrity naturally show less discretion when spending someone else’s money than they do with their own, so create incentives for your employees to treat company money as if it were their own. 

For example, if you give a department a spending limit for a project, what you’ve actually done is provide an incentive to spend that much money whether it’s needed or not.  Instead, what if you allowed that department to keep what they don’t spend for future projects – or maybe even employee bonuses.  Now you’ve given them more than purchasing power; you’ve given them actual money, and their habits and decisions will change accordingly. 

I’m sure you can come up with even better ideas, but the point is that structuring incentives in the right way will minimize waste, maximize profits, spur innovation, increase trust…and lift morale.


Cash Management: Why the Recovery Might Be Your Toughest Challenge

Thursday, August 19th, 2010 by Dave Dudon

Many businesses are worried about surviving the recession, but they should be just as concerned about surviving the recovery. 

To understand why, think about a deep sea diver.  No matter how skilled or experienced he is, he is limited by the amount of air in his tank.  He can’t create more air once he goes under, so he must reserve enough air for his return to the surface or he won’t be diving again.

For businesses, cash is like the diver’s air.  As sales decline and revenue drops, you may have enough cash reserves to survive on the “bottom” for awhile, but when it’s time to return to the top, will you have enough air to make it? 

Be smart about your cash usage.  Be proactive.  Be innovative.  If you don’t, the return of the “good times” may be your toughest times yet.