Exceptional businesses use financial information to improve operating results and to proactively run the business by:
- Understanding what the numbers mean and what decisions need to be made. (See Benefits of Understanding Financial Results.)
- Setting company goals and monitoring progress to make timely and appropriate changes to achieve the objectives.
- Forecasting future results and making the necessary changes to achieve the desired outcome.
Every business owner has expectations and plans. Many times these expectations are “informal” as they are never written down or measured against results.
The budgeting process sets the business’s goals and game plan and formalizes it in a budget. A budget allows a business owner to monitor actual results against formal expectations. The budgeting process utilizes a budget model. Having a budget provides a feedback loop as to how the business is performing against expectations. The business owner can proactively make decisions to ensure that the business meets or exceeds it goals.
Monitoring of actual results against a budget provides feedback of current performance.
Forecasting is a very powerful tool as it is forward looking. A good forecast model allows the business owner to establish the business assumptions for a specified period of time and to see the consequential results. If the results are not the desired outcome, the business owner can take action to impact the outcome to achieve the desired results.
The real power of forecasting is that it allows the business owner to see a future outcome that, if it is not the desired outcome, can be changed through current decision making.
Exceptional businesses understand what the numbers mean, and utilize budgeting and forecasting to guide their business to achieve the desired outcome.
Is your current financial guidance providing you with budgeting and forecasting? If you are not getting exceptional financial guidance, contact CFO 4 Small Biz™.