Besides forecasting
and improving cash flow as I’ve been discussing in the last few posts, forecasting predictable results is the
other huge problem business owners have.
Forecasting is alone
is difficult, but with predictable results makes the process even harder. But – business with predictable results are
worth much more than a business with a P&L graph that looks like my EKG –
AND you’ll will sleep better; you can plan better; and you can focus on really growing
and developing your business.
To help forecasting
predictable results, follow these steps.
1.
Ensure
month-end closing procedure tight and efficient. The numbers need to be solid and timely. It is essential to have a solid base.
2.
Develop
a consistent monthly reporting package.
Understand the numbers and what they are telling you.
3.
Develop
and use an Operating Plan with forecasted income statement, balance sheet, and
cash flow. Forecast and track overall profitability
and cash flow drivers.
4.
Analyze
customer profitability and profit drivers.
The best way to leverage improvements and maximize profitability is to:
analyze, measure, identify underperforming areas and improve those areas.
5.
Look
at all processes for efficiency and Value Stream Map each process – again, measure
and optimize.
Let’s break each down
a little more.
Step 1 - Ensure your
month-end processes are tight and efficient
·
Accurate
and timely financial information is paramount for your business.
·
Have
a month-end closing book or network folder that is neat and organized.
·
Use
a closing checklist for you, your bookkeeper, or your accounting staff –
whoever is responsible for the financial statements. Checklists are great for all standard
processes. See an example here.
·
Ensure
all accounts are up to date and reconciled.
Many business owners only care about monthly profitability and only look
at the P&L. Ensure the balance sheet
accounts are accurate and reconciled. I’ve
made some really bad decisions based on bad balance sheet numbers.
·
Develop
strategies to close faster. The timing
of issuing your financial statements obviously depends on complexity of your business
– but work to improve the timeliness of producing accurate numbers. I know many companies that close in one
business day (I know others that can take 2 weeks). Work to continually improve.
·
As
a small business owner, sit with your bookkeeper or accounting manager and
review each financial statement account.
This will engage them in the process. If a larger company, sit with your CFO and
leadership team to review the monthly financial statements. This is mitigating control is essential and enhances
overall participation, buy-in and contribution.
I will take each the
other steps planning, policies, and processes for each step in future
posts.
