The Outsourced CFO: Part 3 - Plan Where You’re Going
Why Having an Outsourced CFO Increases your Chances of Being Successful
An Entrepreneurs Guide to Financial Responsibility
Part 3: Plan Where You’re Going
If you’re the CEO or founder of a startup business, you may wake up one day and wonder, “Where did the last six months go?” While it’s true time flies while you’re having fun, that feeling of the weeks whizzing past may mean your day-to-day schedule is a little out of control.
Let’s look at why that’s not ideal for new businesses and how having an outsourced CFO can help you feel more in command of the situation.
All the Directions of Your Business
In Part 1 and Part 2 of this series, An Entrepreneur’s Guide to Financial Responsibility, we talked about getting a handle on both your past and current spending. But if you spend all your time and energy focused on those aspects of your business, you’ll never have a second to think about another important direction: the future.
Obviously, there are a lot of abstract reasons why looking at the future is important for the vitality of your business, like you want success or financial well being. However, there are practical reasons to focus on the future too. For example, if your bare-bones expenses are high, you will need to figure out a way to offset that by forecasting for the future.
Where Do You Want to Go?
When you think about the future of your business, you want to drill down your goals to get much more specific. Otherwise, you will not be able to develop a business plan that lets you achieve them.
So, rather than saying things like, “I want to be the most successful manufacturer of XYZ” or “I want to be happy at work” (both admirable goals but not specific), you need precise objectives like:
Number of employees you want to have by a certain date
New products you want to bring to market by a certain date
Level of profit you want to make by a certain date
Did you notice a particular phrase in those samples above? Adding “by a certain date” immediately makes the goal much more specific and ties it to a level of accountability. This is how you want to approach all your future forecasting: with a lot of detail that includes a timeline.
But how do you get off the hamster wheel of running your business in order to plan the future? By the time you’re done with your day, you’ve probably worked 12 or 14 hours (or more). You can barely eat dinner, let alone look at financial projections for your startup. Crunching numbers takes time, research, and resources you don’t likely have at your fingertips right now.
How to Forecast Your Company’s Future
Before we talk about this enormous task, let’s first look at what’s involved in forecasting your company’s future. To project your financial life, the following are the steps you must take:
Begin with Expenses
When talking about your company’s next six months, one year, or five years, always start with expenses. First, list your fixed expenses, such as rent, utilities, and payroll. Then chart your variable expenses, including costs for marketing, production materials, and the like. Always budget more than what you first think (by about two or three times), so you’re not caught off guard. If you can’t remember what to include, go through your checkbook or bank account statements from last year to see what you’ve paid out in various categories.
Develop Two or More Sets of Revenues
If you thought variable expenses were hard to predict, now tackle your revenues. Because this can be so difficult to do, we suggest developing at least two sets of revenues for different economic scenarios. So, project one income for pie-in-the-sky achievements, but counter it with a very conservative projection, such as if a recession were to hit.
Now, Get Realistic
Okay, so you’ve got a basic outline of expenses and revenues for the next year or two. Now, take off the rose-colored glasses. Most startup executives, when faced with a conservative revenue projection, try to retrofit expenses to make low income work. But that’s why we had you figure out your expenses first. Most of those costs can’t be eliminated or even lowered.
What, then, is the point of being realistic? So you can go after financing to make up for a possible shortfall between income and expenses. You can’t cut your expenses, nor can you magically make revenue appear through wishful thinking. But you can go after venture capital if you’ve planned well enough in advance and have some room on your cash runway. You can look at loans you might qualify for. If you wait until it all hits the fan, it’s too late. You need to do this in advance of a situation that could force you to close your doors.
Don’t Go Through It Alone!
Now let’s go back to your original quandary: how are you going to find the time to do all this and still execute the everyday tasks your business demands? Fortunately, there’s Scrubbed. Chances are, you don’t have a CFO yet, but we have that covered for you. We can help you forecast your business’ future and assist with day-to-day financial worries that eat up your time, such as:
Accounting and financial reporting
Inventory management support
White label accounting
Audit and professional services
Tax preparation and filing
Corporate finance services
Scrubbed’s services are turnkey business solutions tailored to your unique startup. We can take on the CFO role for a month, a year, or five years, depending on what you need.
Want to know more about how Scrubbed can help with your daily financial tasks, plus work with you to create a sound forecast for your company’s future? Schedule a free consultation, and we can tell you how we can make your life easier and less stressful. Don’t wait until the future arrives to lament the fact that you didn’t plan for it. Contact Scrubbed today.
About The Author
Aira’s financial advisory expertise includes financial forecasting and modeling, financial due diligence, buy-side/sell-side support, drafting of business plans, and creating key performance indicator dashboards. Her risk management expertise includes corporate governance, internal audit, forensic accounting and enterprise risk management.