Forecasting

Pro Tip: Forecasting Perfection

Nicole Sithithavorn Blog, Pro Tip Budget forecasting, Forecasting, planning

Forecasting is never perfect. While we would like to know the future for sure, we can’t. While it is very important to try to make this as rational and representative of the future as we can, it is equally important to develop it in a way that when we miss we can identify where and, as best we can, why. We want to have some trigger points where we can identify that a planned strategic initiative is going off course, and know that we need to react to it and have an idea of how we might recover. This is why when we forecast, it is not a purely financial exercise, it is also operational.

Coworkers talking while walking in a warehouse

How to Survive Tariff Turbulence

Nicole Sithithavorn Blog Contingency Planning, Forecasting, planning, Scenario Forecasting, tariffs

Tariffs are a long-standing tool of economic policy, but that doesn’t make them easy for companies to navigate. Recently, tariffs have been imposed, lifted and then revised, making it difficult for companies to predict short-term costs. U.S. businesses may face different rates depending on whether they’re importing finished goods or components for domestic assembly. And finally, the latest wave of tariffs has arrived just as supply chains had begun to stabilize following years of pandemic-related disruption.

How to plan

The global reach of modern tariffs, combined with ever-changing rules about what’s included and at what rate, has shaken confidence in the systems businesses rely on. One thing is certain: Higher prices are an inevitable result of tariffs. That leaves companies with a difficult set of choices: Raise prices, absorb the added cost or try some mix of both.

In response, companies are testing a range of pricing strategies. Some fold tariff costs into their base price. Others list them as a separate surcharge. A few hold pre-tariff sales to stimulate demand. Each approach has trade-offs; what matters most is acting with intention.

Rather than wait for certainty, some businesses are building short- and medium-term strategies based on how the situation might evolve. Scenario planning includes possibilities such as:

There are no new tariffs.
Tariffs increase.
Tariffs are eliminated or reduced.
Exemptions are extended.
Pauses are lifted.
Retaliatory tariffs (from other countries) are imposed.

If your company opts to plan this way, be sure that each scenario accounts for how suppliers, lenders and customers might respond. For example, banks may tighten underwriting standards in response to tariff volatility. Consumers, especially those in discretionary markets, may delay spending when tariffs and recession fears coincide.

It’s also helpful to build in transparency. Early, clear communication about possible pricing changes and the potential timing of those changes builds trust with both B2B and B2C customers. Some may still choose to cut back or walk away, but others will appreciate your company’s respect for how they too need to plan.

Your company is best likely to weather tariff turbulence if it plans ahead, acts deliberately and stays nimble as conditions change. As always, consult tax and financial professionals before making structural changes to your business.

Scenario Planning as Part of the Strategic Planning Process

admin Blog Forecasting, planning, Strategy

The COVID-19 pandemic disrupted businesses in several major ways — some good, some not so good. One positive change is the acceptance of scenario planning as a way to build resilience and preparedness into a business’s strategic plan.

Scenario planning is not new. It has been around since the 1950s, when Herman Kahn used it in his work for the U.S. military at the RAND corporation. It did not immediately catch on among small or midsize businesses, which believed it to be too time consuming and impractical. However, some larger companies, notably Apple, have recently had success with the method, leading to a surge in its popularity.

Scenario planning can help solve many issues, from big-picture ones to problems that occur in specific situations. Here is an example of how it can be used in today’s business environment: The so-called “great resignation” is affecting every level of business, from the top down. When people leave, they take institutional knowledge with them. In times like these, when people leave before they train a replacement, the loss can be especially impactful. So, instead of simply hiring someone else for an open position, what if the company took the time to evaluate whether its needs have changed or are expected to change soon — and then hired in anticipation of meeting those needs?

Scenario planning is a tool that seeks to provide reassurance in times of uncertainty by assessing a set of “what if” situations that describe how the future might unfold. The exercise is designed to challenge conventional assumptions.

The most common method of scenario planning is the four-scenario exercise. To begin, identify external opportunities (e.g., a manufacturer gets a contract with a big-box store) and challenges (e.g., there is a major supply chain disruption). Then classify each possible outcome as both high or low probability and high or low impact.

High-probability/high-impact scenarios. These types of scenarios require strategic shifts. Identify the backup plans that must be in place if there is a major supply chain disruption. Currently, many businesses are facing this type of worst-case scenario. What are they doing to deal with the situation? What strategies and tactics do they need to have in place to prevent the same problem from happening in the future? What other sources are available for your products? Is there a product that can be substituted for the original? It is important to think outside the box and explore all options. This exercise is about planning for disruption, so look for a disruptive solution.
High-probability/low-impact scenarios. These types of scenarios are important, but do not need urgent attention. Any changes in these areas can be made incrementally. For example, imagine you know your lease is expiring in three years. It is important to start renegotiating your existing lease or find a new space, but the business will not be impacted if you put off starting the project for a few months.
Low-probability/high-impact scenarios. This category represents a major disruption, like the COVID-19 pandemic. How would you prepare your business for another pandemic, or a flood or a fire? Make sure you have disaster recovery plans and procedures in place.
Low-probability/low-impact scenarios. Often called flash-in-the-pan scenarios, these are one-off situations that require attention. Trends are an example of a flash-in-the-pan scenario. It’s important to have a plan in place in case one of your company’s tentpole products goes out of fashion.

Pro Tip: In times of economic turmoil

admin Blog, Pro Tip Forecasting, Management, Margins, pro tip, risk management, Small Business, Strategy

In times of economic turmoil, it can help business owners both practically and emotionally to think outside of the box from what they are normally engaged in with the day to day business. Some examples of this:

Consider opportunities to pivot to reach new customers and/or markets
Develop alternative plans to provide guidance on what actions to take in the case certain negative outcomes materialize
Take item 2 farther and map out the financial implications of those actions
Drill down on gross margin and cash flow data to ensure nothing is being left on the table

Preparedness = Resilience

Is This Your Situation: You’re Trying to Create a Flawless Budget

admin Blog Budgets, Construction, Forecasting, planning

A good annual budget should be able to keep a construction firm from running the risk of spending more money than it earns throughout the year. If you don’t have a clear budget, even if you’ve been running smoothly for years, future expenses could be more challenging than you anticipated. For example, you may have to expand or replace old machinery. If enough money is coming in, that won’t be a problem. But if you don’t have a grasp on expenses versus income, you could find yourself in the red.

There are several important reasons to create an accurate annual budget. For example, you may need to apply for a bank loan. In that case, your bank will need to see a formal budget as a part of your business plan.

Budgeting Techniques

You can use a variety of techniques to establish your annual budget. Depending on your work and the people involved, you can devise your own budgeting strategy. Several universal parameters within a budget plan, however, serve as a foundation. For instance, a fixed expense might be your mortgage or rental payments on your office property.

You also should consider basic overhead expenses, such as utilities, payroll and raw materials. Less-tangible items include interest, insurance and taxes. All of these are fairly clear expenses, but you also have to consider such expenses as website development, signs, business cards and advertising.

Standard Expenses

Anticipated expenses are good places to start when developing your construction firm’s annual budget. Even more specific expenses may be unique to your company. Consider some of these other standard expenses:

Business permits and licensing requirements
Salaries, wages, and benefits for you and your employees
Tools, supplies and inventory
Loan and credit card payments
Services such as accounting, maintenance and marketing
Heavy machinery and vehicle or equipment payments, fuel and insurance

Your budget planning will change dramatically depending on where you are in your business process. If you’re an established firm with a need to formalize existing plans, your experience will be quite different from that of a brand-new firm looking to establish its name in the industry.

Budgeting can be a time-consuming process. Before you get too deep into the accounting function, contact us so that we can help set up a budget that’s right for your company.

Pro Tip

glevi Blog Forecasting, Growth, pro tip, Scaling, Segmental Analysis, Strategy

Segmental analysis is something many SMEs do not engage in, but it often proves invaluable when we are working to identify the best areas of potential enterprise value growth. Segments can include things like products, services, geographic areas, marketing verticals, team member, and more. Understanding what you are doing now to drive the highest value allows you to be intentional about doing more of that, it also allows you to work to identify complimentary offerings or targeted areas of efficiency improvement to drive higher contribution margin strategic growth. Get granular, start now!

AI and Manufacturing: The Future Is Now

glevi Blog AI, Forecasting, Manufacturing

All manufacturers should be aware of this statistic: Artificial intelligence (AI) in the manufacturing industry is expected to reach $11.7 billion by 2025, growing at a compound annual growth rate of 54.6% from $2.6 billion in 2021. Among manufacturing leaders, 34% report investing in AI to bolster their bottom lines. These eye-opening statistics indicate that even small manufacturers can benefit from implementing AI in their businesses.

Undoubtedly, the pace of this change was accelerated by the COVID-19 pandemic, which caused manufacturers across the board to reassess their supply and distribution chains and their warehousing strategies. In those areas, AI can proactively identify problems and provide predictive forecasting.

Machine maintenance

The promise of integrating AI on the manufacturing floor cannot be overstated. AI can be used to predict which machines will need maintenance and when. This is a big shift from scheduled maintenance, although it can integrate with preexisting schedules. AI relies on machine-specific data such as workload and shift schedules to determine maintenance schedules. Using this data, AI can predict how much longer a piece of machinery will continue performing before it needs to be repaired. Consequently, it can reduce downtime, especially unplanned downtime caused by an unexpected breakdown, and allow hard-to-get parts to be ordered in a timely manner.

Cybersecurity

Cybersecurity is another area in which AI can help manufacturers make positive changes. There are many facets of cybersecurity, from setting and implementing zero-tolerance policies to choosing operational technology. AI can help by automatically sifting through the company’s data to detect and identify internal and external threats and intrusions.

Physical and premises security

Often, manufacturers are forced to weigh the cost of live security against the need to protect company assets. AI allows companies to utilize video surveillance systems for this purpose. These systems are sensitive enough to distinguish among people, animals and objects, and to identify suspicious behavior patterns. The systems can trigger alerts based on specific parameters. Some systems can communicate with trespassers and call for help in real time.

Forecasting

Forecasting is never easy, but perhaps the biggest lesson manufacturers learned during the COVID-19 pandemic is that they had to get better at it. There are still shortages in many areas that are causing prices to rise. While many experts suggest these high prices will ease, manufacturers are faced with forecasting their future needs and their associated costs.

This means forecasting on the basis of best-better-worst scenarios looking forward, rather than on past performance. Predictive AI technologies can assist with this, helping manufacturers reduce costs by better predicting inventory and warehousing needs.

As AI continues to evolve and grow more sophisticated, companies need to be flexible in their approach to adopting it. This means being open and agile enough to adopt new technologies. It also means reskilling and upskilling employees so they can use it to maximum effect. On the software side, it means doing the necessary research so the software the company purchases has the requisite interfaces and growth potential.

Don’t Let Undercapitalization Affect Your Construction Company

glevi Blog Cash Flow, Construction, Forecasting, Liquidity

Even without knowing its exact definition, you can just tell from the way the word sounds that undercapitalization is not good for your business. Undercapitalization occurs when a business holds insufficient funding — or capital — to support its operations. It is cause for serious concern about a potential major financial crisis for any business, but among contractors it is considered by many financial experts to be the leading cause of business failures.

Obviously, your company needs enough money to achieve your financial and business goals. More specifically, though, you should never underestimate how much capital is necessary to pursue the most profitable construction projects. Those contractors who aren’t fully aware or conscious of the money required to get a business up and running, and then sustain it as they work to establish a commercial foundation, may find themselves undercapitalized. The challenge is that, for any business, undercapitalization can quickly turn into a perpetual downward spiral from which it is difficult to recover.

Construction businesses need to keep their focus on attaining and maintaining the cash necessary to fund projects in terms of employee wages, equipment and supplier materials before the first installment of project payment.

The Impacts of Bad Cash Flow

Often, bad decisions are made when a company’s management is forced to wrestle with poor cash flow. Behind-schedule payments then have an increasingly detrimental effect on the company’s cash flow and start that downward slide into undercapitalization.

One cash flow issue you should try to avoid is mistaking cash receipt or positive cash flow with excess cash. Once money is spent, there’s no way to get it back, right? So one of the best tools you should employ to manage cash flow is your monthly budget and cash flow projections. Regular comparison of current and projected expenses, for example, will help keep you on track with spending.

While getting paid on time can be an ongoing struggle, there are steps you can take to address that issue as well. Understanding how each client handles accounts payable when you submit for draws will help you maintain a positive cash flow. Missing a draw or having poor-paying clients can lead to problems, so stay committed to your draw dates.

The Rewards of Planning

One of the most important skill sets to avoid undercapitalization is the ability to develop a comprehensive, accurate construction project plan. By determining your manpower, equipment and cash items up front, you will enhance the chances of success for a project. Basically, you never want to overestimate your team’s capabilities or underestimate your cash flow. If you have correctly accounted for what machinery, tools and skilled specialists will be needed and when they must be provided in the construction schedule, you can limit any periods of downtime or decreased productivity. Of course, you need to continually monitor and review a project plan to address any delays or other circumstances that may arise.

Always Strive for Sufficient Capitalization

In the end, undercapitalization can seriously restrict your business’s daily operations, growth and success. Sufficient capitalization, on the other hand, enables a business to handle slow periods in the business cycle or address other challenges that occasionally happen in the life of a company. More important, it can give you a competitive edge that positions you to grow and move ahead as a company.

In fact, according to the Small Business Administration publication Financing for the Small Business, one of the critical characteristics of successful entrepreneurship is having access to sufficient funds to run a business.

Pro Tip

glevi Blog Forecasting, pro tip

Driving blindfolded is scary, right? So is operating your business without a financial forecast! Taking the time to use a data driven approach to plan out your future growth trajectory is worth its weight in gold. We see the advantages of this process every day, including empowering informed decision-making, a better understanding of the needed liquidity for planned growth and a focus on using assets in the most efficient way. Get to work analyzing past financials, determining realistic assumptions and considering external factors to pave the way for forecasting effectively.

Is an Outsourced CFO Right for You?

glevi Blog Budgets, Cash Flow, CFO, Finance, Forecasting, Outsourcing, planning, Reporting, Strategy

Outsourced chief financial officer firms provide you with an external expert to guide your company’s financial strategy, operations and planning on a part-time, contract or project basis. Leveraging this kind of external managed service can improve your company’s ability to adapt quickly and scale efficiently.

Outsourced CFOs are particularly beneficial for startups, growing businesses, or companies undergoing significant changes or facing financial challenges. They deliver bench strength for accounting, compliance and financial operations while reducing costs.

Examples of the benefits to your company of an outsourced CFO include:

Strategic financial planning — An outsourced CFO can analyze financial performance and identify future opportunities and risks to boost your company’s profitability and ensure sustainable growth.
Risk management analysis — An outsourced CFO can identify potential financial risks, from market fluctuations to regulatory changes, and develop strategies to mitigate them. They can also help safeguard the firm’s assets.
Financial reporting — An outsourced CFO can ensure that all financial statements — income, balance sheets and cash flow — are accurate and compliant with legal standards.
Cash flow management — An outsourced CFO can monitor cash flows to ensure your company can cover its operational needs. They can also identify growth opportunities, maintain liquidity during downturns and capitalize on market upturns.
Liquidity monitoring — An outsourced CFO can ensure that your company can cover its short-term liabilities and avoid financial distress.
Budget analysis — An outsourced CFO can provide budget reviews and adjust forecasts based on performance and changing market conditions, helping your firm use resources efficiently and maintaining financial discipline.
Forecasting — An outsourced CFO can analyze historical data and current market trends to estimate future financial performance, sales and expenses. They can help inform decision-making and strategic planning.
Reports and presentations — An outsourced CFO can provide reports and presentations necessary to make key business decisions.

Outsourced CFOs offer varying levels of engagement and commitment, including:

A fractional CFO is hired part time on a contractual basis to help your business expand and compete.
An experienced CFO will bring financial strategy and management skills to your firm, giving you access to an objective perspective without the overhead of a full-time salary.
A full-time CFO can be hired for a set time to navigate periods of significant change — for example, periods of rapid growth and/or mergers and acquisitions.
An interim CFO is hired during a transition period, often to cover a permanent CFO’s extended absence or to cover the CFO duties while your company searches for a permanent hire.

Why hire an outsourced CFO?

An outsourced CFO can help your firm achieve its financial goals through:

Cost-effective expertise — An outsourced CFO has worked with other industries and has a broad perspective, including specialized skills. At the same time, you can scale back the service once your company no longer needs the help.
Strategic insight — An outsourced CFO offers financial perspective that might not be apparent from inside the company. They have no vested interest and bring unbiased opinions that can be crucial when your company is facing tough financial decisions.

An outsourced CFO can instill confidence, steering your company to financial stability and success. They will help you understand financial processes like cash management, giving your company a strong financial foundation and assisting in decision-making to achieve growth.

If your company is well established, an outsourced CFO can assist with market expansions. They offer complex financial analyses and conduct due diligence. They provide accurate data to protect your firm’s interests and attract investors by accurately communicating your firm’s value and growth potential. By using the outsourced CFO’s higher level financial planning, strategic guidance, risk management and financial reporting skills, your firm can grow and compete on a larger scale.

Consider an outsourced CFO when you need tailored, project-based solutions or when it’s time to expand beyond just tax services.