The CFO'S Perspective

The Convergence of Accounting and HR

Companies that understand how finance and HR overlap and foster a relationship between the two are better poised for long-term growth than their less informed counterparts. The reason behind this is simple – knowing when and how to leverage your CFO to assist with hiring and employee retention can improve profit margins, encouraging sustainable long-term growth. Additionally, encouraging collaboration between these two vital areas of the business improves workplace culture across the entire organization.

Topics: Recruiting Finance Accounting Trends Hiring Planning HR Leadership Budgeting Forecasting Strategy

When to Use a ‘Decision Tree’ for Business Planning

Originally published: 2/15/2021
Updated: 3/4/2024

For those not familiar with the term, a decision tree is a flow chart that works through all possible response options in a scenario to analyze resulting outcomes. Basically, it is a visual version of an “if this then that” statement across all possible alternatives.

The “branches” off each decision alternative that result use data analysis to forecast the most likely outcome of each decision. When one decision leads to another decision that must be made, that branch splits to continue extrapolating the effects of each subsequent decision. The result is a tree-like diagram (hence the name) that is easy to understand and interpret.

Decision trees can be more conceptual in nature or have numbers to back up decision scenarios, as is the case of pricing changes affecting revenue figures. For decision trees with complicated calculations, a software program can assign values and probabilities to streamline decision-making. A decision tree is a critical part of strategic planning because it allows decision makers to analyze the effects of a significant change throughout different areas of the business.

Topics: Data Analysis Planning Analysis Leadership Growth Forecasting Risk Management Change Management Strategy

Mastering the Budget Reforecasting Process

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.”

Topics: Data Analysis Financial Projections Budgeting Forecasting Strategy

Financial Projections for Startups – A How-To Guide

Financial projections are a critical component of a sound business plan. These projections (or “financial forecasts”) are used externally to obtain funding as well as internally to create a strategic growth roadmap with key milestones.

At the core of these projections are logical assumptions for revenue, COGS (cost of goods sold), SG&A (sales, general, and administrative) expenses, capital investments, and cash flow that serve as building blocks for the final figures that result. Because your financial projections rely on these pillars, it is crucial to find a balance with these inputs. Being too conservative or too aggressive with your assumptions will skew the resulting projections, damaging their overall credibility. The goal is to inspire confidence externally as well as internally while maintaining high ethical standards, which requires a balanced approach toward creating assumptions for financial projections.

Use existing financial information, even if it is limited by the newness of your business, to justify these assumptions and inform your financial forecasting process. Your resulting financial projections should include a P&L statement, cash flow statement, balance sheet, capitalization table, and strategic investment plan.

Topics: Funding Planning Financial Projections Financial Reports Forecasting Financing

Is Your Business Prepared for an Economic Downturn?

Being prepared for an economic downturn is fundamentally good advice. The economy is cyclical and eventually there will be a downturn of some sort. Preparation ultimately boils down to two basic business disciplines.

Topics: Economic Trends Planning Forecasting

What if Tomorrow is Not Like Today? Part II: Preparing for Disasters at Work

Most of us believe we are prepared for the everyday kind of disaster at work:  We carry extra cash, safety pins, and a cell phone.  We keep a granola bar (or five) in our desk.  In Seattle, we never, ever, let the coffee pot run out. But while all these things are good (especially the coffee pot), most of us never think about what we would do if a true disaster struck during the time we are at work -- the place/s where we spend more waking hours than anywhere else.   

Let's take the case of an earthquake, since that's our most likely Puget Sound area disaster, and the basic things to prepare for if one occurs during our workday apply to many other scenarios as well.  

Topics: Planning Financial Projections Forecasting

Predicting the Future - What if Tomorrow is Not Like Today? Part I

Recent sad news about the wildfires disaster in California which has destroyed homes, businesses and caused so many deaths is a reminder for us again to consider the future.

…up to 40% of businesses hit by natural or human-caused disasters never re-open.”

According to FEMA, the Federal Emergency Management Association, up to 40% of businesses hit by natural or human-caused disasters never re-open.  They close because their normal processes are overwhelmed by loss:  loss of data, inventory, space, personnel, or all of the above.

Topics: Financial Projections Forecasting

How to Close a Business Successfully

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.

Topics: Planning Budgeting Forecasting