Annual IMPACT Forecaster®

I’ve heard this statement more often than I care to admit: “I cannot predict the future so a budget would be worthless for my business.”

I have and will continue to make this guarantee to any business in any industry anywhere in the world: if you follow the “best practices” steps to creating a financial plan and an operating budget for the next twelve months, or Annual IMPACT Forecaster™, and you track your monthly progress every month for twelve months against that plan, you will know more about your business than 80% of your competitors know about theirs.

Why can I make that promise? Because the things learned in that twelve months are so revealing in terms of the most effective business model for what you’re trying to accomplish that you cannot help but begin to develop and implement the right strategies for making the business more successful. Not to mention other competitive advantages that are commonly gained throughout this process.

Annual Budget Balance Sheet Forecaster DashboardAnnual Budget Balance Sheet Forecaster Dashboard

Why do most businesses neglect this process? The two main reasons are, first, lack of discipline and, second, lack of resources. This process requires disciplined time, including reviewing your results against your budget EVERY month. It’s important to take this one step at a time. It may seem overwhelming at first, but once you have your system in place and do it a few times, it will become a habit to which you may become addicted.

The focus of this monthly analysis should be on the variances. The budget is worthless if you don’t do this. You need to know why you varied from your budget. What can you learn from that? Which assumption did you make that did not come to pass? What can you change to improve your performance in that area?

Annual Budget to Actual Summary DashboardAnnual Budget to Actual Summary Dashboard

Some companies lack the resources to be able to analyze their historical data and then easily track their progress. Perhaps they do not have an accounting system in place, or perhaps they do not have anyone that knows how to properly operate their system. The accuracy of the numbers is certainly a critical element to making the budgeting process a successful experience. So, having the right staff, a functioning accounting system, and procedures for creating and tracking the Annual IMPACT Forecaster™ are critical to this process. Even QuickBooks allows its users to enter in budget information and run reports to track monthly progress and variances.

Annual Budget to Actual Detail DashboardAnnual Budget to Actual Detail Dashboard

If anyone reading this doubts me, I challenge you take the Annual IMPACT Forecaster™ challenge for twelve months. In my experience as a part-time CFO for many emerging companies, the value derived from the budgeting and reporting process has repeatedly and dramatically improved the bottom-line of every company that implements these principles and best practices. I’m confident you’ll experience similar results. It will make your disciplined time worth every penny spent, and then some.

An Annual IMPACT Forecaster™ needs to include more than just a Profit and Loss statement (P&L). You should project your balance sheet performance as well. And, with each account from your balance sheet budgeted for the next twelve months, you can also project, with surprising accuracy, your statement of cash flows as well.

Yes, your budget should include all three of the main financial statements. Each of these three reports appeals more to different groups, but effective businesses use all three to their advantage. The Profit & Loss is usually the focus of entrepreneurs, who disregard the balance sheet and statement of cash flows because they are confusing for those without a lot of education and training in accounting practices. Bankers are usually infatuated with the balance sheet because it is the measure of a company’s overall financial health. The statement of cash flows is a favorite among investors, because the intrinsic value of your business is revealed in its ability to generate cash from certain activities, which are illuminated on this report.

With the next twelve months planned from a cash flow, profitability, and financial health perspective, you will be ready to take on the year as well as make adjustments and changes promptly when assumptions in your projections change.

As an example of how your company can benefit from your annual projection, consider what this entrepreneur experienced. A successful software company I work with lost a very significant customer. The initial projections for the impact this would have on the business were devastating. There was no way the business would be able to survive. The entrepreneur made a few reductions to soften the financial blow, and then started spending all of his time selling, trying desperately to bring on new customers to replace the one leaving.

This entrepreneur made an amazing discovery during this process, one that he should have realized a lot early. When he devoted his time to sales, the company brought on a lot of new customers. Within just a few months he single-handedly had almost completely replenished the lost revenue from the one customer who left with revenues from dozens of new customers, a significant upgrade in their customer concentration percentages. They became less dependent on any one customer, reducing their risk and improving the overall value of their business.

Just like this entrepreneur experienced, having an annual forecast and then tracking your progress against it will help you quickly adjust your business to turn whatever challenges or opportunities that present themselves to your benefit. And it will also help you find new strategic opportunities as a result.

 

  Annual IMPACT Forecaster®
Insightful Helps entrepreneurs run business by the numbers
Meaningful Focus on key drivers in every discipline of the business
Precise Empowers to estimate monthly performance accurately
Accessible via SaaS technology using interactive, powerful charts and graphs so you can spend your time improving your business, not analyzing hard-to-read and even harder-to-understand reports
Comparitive Actual vs. planned, industry benchmarks
Timely Monthly, by the 15th of the following month