Part 1 of 3: Critical Contract CFO Components Most Small Businesses are Missing

Quite literally, budgeting saves things. But what is most critical for meaningful results is that the budget process is more than just whimsically concocting a budget as you would a cocktail. It is in the comparison and review of actual numbers where the magic happens. It’s about accountability and enlightenment.

With divorce rates publicly held as always rising, over 50% of those splits cite financial disputes as the primary reason for the break-up. Similarly, fewer than 5% of businesses make it successfully to the 10-year mark. Financial problems plague many businesses, especially those on either fringe of growth: high growth or decline. You either need to put every dollar into inventory to fund growth, or you’re cutting weekend exec trips and the doughnuts. For one last comparison, if we lived in an alternate dimension where our government was to espouse higher principles of accountability and enlightenment from scrutinizing actual expense items with budgeted lines, we would not have a government that shuts down. Let’s face it; I’m no expert in marital relations or government rescue, so let’s focus on saving businesses through budget to actual comparisons.

Budgeting Helps Small Businesses

Let’s focus on 7 positive impacts that budget to actual reporting and comparing helps not only a business owner but also a business’s executive team:

  1. Forces us to collaborate. And being involved in the budget and forecast formation process instills a sense of ownership, but only if autonomy and collaboration is at the heart of the process. Don’t force budget or forecast items.
  2. Holds departments and individuals to a healthy sense of accountability. Knowing that you will have to report on how you’ve spent your budget, or used half your month engaging in non revenue-producing activities makes you think twice. It also makes you evaluate and prioritize for the best ROI.
  3. Gives an opportunity and reason to celebrate. Not everything is doom and gloom! Praise and rewards should be given freely and lavishly when targeted numbers are hit or when, despite major surprises or hardships, a good effort and good result was still achieved. This should be a go-to response for a good leader.
  4. Helps you identify negative (and positive) trends earlier. Nothing is worse than to realize three months too late that you’ve been bleeding because some small changes in your contracts with a few key customers has been losing you money each month that you’ve kept them. On the flip side, recognizing that something new is working in the positive direction can help you re-allocate crucial resources to magnify the impact of that activity.
  5. Humbles us. You’re not the only person or department with needs. And dealing with limited resources can be very enlightening. Comparing my actual production or revenue numbers to what I forecasted can also be a very humbling moment.
  6. Provides an opportunity for reconciliation. Sometimes we make mistakes and don’t hit the numbers that we said we would. In this meeting where we compare is the perfect opportunity for forgiveness to be given, especially if it coincides with a plan for remedying the situation and a renewed determination to get back on track.
  7. Gives each part of the organization an opportunity to claim needed resources, and shows how they all work together. Paul referred to the body and noted that each part needed the other. The hand needs the eye to be able to be successful. And so it is with each member or department of the organization. And they won’t recognize it in isolation. But learning more of the struggles that they face will help them appreciate their own struggles and opportunities.

Preferred CFO

Preferred CFO, based in Utah, provides budget to actual reporting and helps its clients work through the process of budgeting. By working with a contract CFO, its clients are better able to understand the true economics of their business and able to make strategic decisions because of their insights into the profitability of their business as well as the trends that are impacting the business. Preferred CFO handles all of the complex issues surrounding the forecasting and projecting of cash and other elements, and leaves the credit-taking to the client. by Russ Walker [hr]

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