Get your business fit – Objectives, strategies, forecasts and budgets
With the core division of labour within the business now well understood, it is time to make your business strategic. If your core business is not functioning effectively with a respectable profit and generating a positive cash growth, then the only objective and strategies to be engaged are what needs to be done by each pillar or division of the business to ensure it is profitable and generating cash.
Your strategy must be to get Business Fit.
Once you are Business Fit and generating upwards of 12% Net Profit there is a great deal you can do.
Whilst many articles provide advice that your business requires a vision or mission statement to help guide the thoughts and actions of stakeholders and indeed this could be of benefit, what is critically important to your business is that your team have a clear understanding of your main organisational objective – what your business is aiming to achieve. Do you want to be recognised as providing the highest levels of customer service? Do you want to maximise profitability? Do you want to be an employer of choice to attract the best talent? Do you want to expand geographically? While these are all quite different and could ultimately result in fundamental change across the business, what is important is that you have an objective and can communicate that objective to a range of stakeholders to bring them on the journey.
While the objective is largely the role of the advisory board to determine, the strategies are owned by the divisions of labour, and in particular those people accountable for the divisions. By example, if you are going to expand geographically, what strategies must each division put in place to ensure the milestones are met in the necessary timeframe. Working with the teams to develop the appropriate strategies is frequently the domain of the forward looking CFO. Focussing on inappropriate strategies can result in the business going off in a direction that does not reach the objective resulting in frustration and lost profits. Not effectively tying the strategies and related costs in with the forecasts and budgets is just as problematic. The CFO is ideal in performing this oversight role as they ensure the sum of the strategies results in obtaining the objective as represented in the business plan or strategic plan.
One of the key elements that the CFO will resolve is that “less is more” when it comes to strategy. You are far better placed having a small number of strategic objectives that you achieve and develop a culture of execution throughout your company rather than a larger number of strategies that simply cannot be achieved. Where too many strategies are engaged staff will frequently not perform their core role or the strategies to the requisite level of satisfaction. In many instances all strategies discussed by the executive team deserve to be delivered and will be passionately sponsored throughout the business. Some of the more challenging decisions that need to be made because of the potentially far reaching implications is why some of the strategies will not be adopted.
In the diagram above, the objectives and strategies are depicted as leading the pillars of resource, whilst underpinning all this are the business forecasts and budgets ensuring they are being met.
In simple terms, business growth costs money. Whether it is hiring additional staff to increase your sales pipeline or a series of strategic acquisitions; there is a real cost to business growth and it is imperative that profit margin and cash flow are maintained or you could easily find your situation worsen. Accurate monthly forecasting and presentation to the advisory board is critical to ensure you are in full control of the core financials of the business and the defined business strategies are being achieved.
Utilising this information is also important for keeping your financial partners with you on the journey. For them to invest more money (debt or equity) it is important that they know you have a strong capability to set a forecast and achieve it. Failure to be able to forecast and achieve the forecast creates risk in the mind of financiers and can result in reduced available funds, increased cost of funds or more stringent caveats surrounding the funds. Your CFO turning this into a strength can greatly aid your ability to grow consistently and more smoothly.
CFO Evolve provides exceptional part-time CFOs, passionately building great businesses through financial and strategic insights. Contact us if you think that we can assist with your business growth.
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