How to Avoid Financial Surprises

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How to Avoid Financial Surprises

How to Avoid Financial Surprises

Pillar 2: Planning

It’s clearly not possible to avoid all surprises. But we can avoid most when we keep our eyes firmly on the road ahead. For a business, that means getting into the habit of making regular budget updates.  

The Monthly Refresh

The annual budget is a great start, but a once-a-year budget doesn’t cut it.  How likely are we to look out our windshield just once when we head off to work and then stay glued to the rear view mirror for the rest of the trip? That’s what we do when we budget just once. And, by the way, let’s not give budgeting to the “numbers person,” i.e. the CFO, to extrapolate from last year’s results. Many perspectives are needed to properly map out the future – and then to make it happen.

The idea of regular re-budgeting should not scare us.  When budgeting is a continuous process we get into the vital habit of constantly thinking ahead which makes monthly updating a relatively simple and quick process. It’s simply a matter of making small adjustments based on new information and insights. 

Team Effort

The 3 primary ongoing budgeting areas are Sales, Cost of Sales and Operating Costs. Sales is obviously the domain of the sales department that should be using some kind of regular sales tracking and forecasting system, ideally a CRM like Salesforce.com, although spreadsheets can work as well. Cost of Sales (or COGS for product companies) is a collective effort. Operations updates margins based primarily on historical costs and Sales protects the margins in the sales process. Operating costs are monitored and projected by the accounting department based on what other departments require to do their work within the constraints of the company’s target net profit goal.

The bottom line?  Financial surprises are avoided when a company is in the habit of constantly looking ahead through a regular rebudgeting process.  

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