The CFO'S Perspective

Budgeting and strategic forecasting creates a business roadmap to maintain stability and achieve growth. However, for forecasting to be accurate it needs to be modified when significant changes occur either internally or externally. This is especially important to consider this year, as supply chain disruptions and changing business regulations have drastically changed corporate outlooks across the country.

If you understand now that there is a high likelihood of needing to undergo reforecasting next year, you will be better equipped to do so when the time comes. Kory Wagner explains, “Expecting your assumptions to last through an entire year is at best naïve and at worst detrimental to your business. Incorporating reforecasting into your regular budget process, as needed, will keep you on track and help you roll with the punches.”

Some companies are reforecasting-averse, so they shorten their budgeting cycles from annual or semi-annual to quarterly or monthly to reduce their chances of needing to do so. But if 2020 has taught us anything it is that every company should be prepared to reforecast as needed because it could become a necessity at any time.

So, this year as you finalize budgets and forecasts, take the approach of “planning to re-plan.”

In the last six months, we have seen unparalleled increases and decreases in sales and production volumes. Are you getting enough information (and the right information) from your Financial Statements to make good management decisions in these turbulent times?

The most complex segment of the financial statements for manufacturers and the most volatile in these changing times is the cost of goods sold. The different income statement formats and content significantly impact its usefulness for managing significant volume changes.

Let's look at the various formats of financial statements from using a small manufacturer as an example and review how they might or might not help in decision making.

Employees are your greatest assets. They are the first line to your customers, the ones driving innovation, and have the ground-floor information you need to run your business. Likewise, those same employees rely on a stable income to meet their short-term financial and retirement goals. 

But, if an employee is unable to work due to disability or some other life event, everyone loses. And the unfortunate fact is that a majority of people believe this is something that will “never” happen to them. But, it does with stunning regularity.

As head of CFO Selections corporate philanthropy initiatives, the question I get most often, especially now at budget time, from other company executives is, “What is the right amount of money to budget for donations?”

Before answering this question, I usually ask,

What are you hoping to achieve with your corporate philanthropy?”

I have not failed. I've just found 10,000 ways that won't work.
- Thomas A. Edison

For whatever reason, you've determined that it's time to close the doors and walk away from your business. Shutting down your business may be the hardest thing you'll ever do, but it's not uncommon. In fact, 90 percent of start-ups and early-stage companies close each year in the U.S.

If it's any consolation, most successful entrepreneurs have failed previously at some venture - or several. Walt Disney was reportedly fired by a newspaper editor for having no imagination and lacking good ideas.

Currently the world's richest businessman, Jeff Bezos had several failed ideas before Amazon took off. Most notably, his auction business called zShops never gained any traction. It's important to realize that it's okay to stop pursuing an enterprise that isn't working and start doing something else.

Closing a business, however, involves more than just shutting the doors and walking away. If you do this, you could open yourself up to unnecessary fees, loss of personal and business reputation, and even lawsuits. When making decisions about closing a business,  visibility to see issues coming is vital. Good financial advice is a great place to start.

How do you plan or budget raises for your employees? As you create next year's budgets and update your strategic plans, you also need to take several vital steps.

These include looking at the big picture, understanding and limiting your risk, getting help if you need it, and utilizing a financial planning tool to provide the right raises to retain and attract talent.  This may seem like a tall order, but a systematic approach will help your organization achieve its staffing and budget goals.

As a CFO, one of the common reasons I am brought into a manufacturing organization is to solve the mystery of “Why our sales are growing, but profits low?”  Most of the companies I work with have rigorous quoting processes that they assume will protect them financially, but in the end their actual monthly profit margins often fall short of quoted (and anticipated) profit margins.

Before diving into an examination why profit margins lag behind sales growth projections it is important to take a look at accompanying financial reports. These are categories from a simplified manufacturing income statement:

In this article we will discuss materials, direct labor and manufacturing overhead as they relate to gross profit.

A CFO is responsible for budgeting and accurate cash flow projections. While not necessarily an HR expert, the matter of salaries and raises is an area that a CFO must navigate in collaboration with the company’s HR team. We are sharing our thoughts on this area from a CFO’s perspective.