Budgeting, Forecasting, Planning Set Successful Businesses Apart

Budgeting, Forecasting, Planning Set Successful Businesses Apart

Winging it is no way to run your business. You've got too much at stake. Even a small change in your cash flow can cost you tens of thousands. Proper business planning is an essential tool for successful businesses. 

This is the first of a three-part series on successful business planning and is a primer on how to prepare your organization to respond effectively when things change. The discussion will cover how to align your team to reach new goals and to realize the potential for your organization. 

First in the series will be a look at the need for budgeting, forecasting, and planning. Then will come a discussion of three principles around which to to build your business, and finally how to implement your planning in the real world

Imagine you are a pilot flying a plane over mountains at night. Without your instrumentation you are toast. Now imagine trying to drive a car down the road by only looking out the rear view mirror.

Driving a business without budgeting and planning is about as effective. But a surprising percentage of CEOs is operating without any form of budgeting, forecasting or planning. Worse, they have some kind of budget based on what happened last year or on fabricated hopes and dreams. Neither is very useful.

The collective experiences of numerous CEOs of mostly small to medium-sized businesses proves that the financials of a company, over time, tell a story. Along with background information about the business provided by the CEO, this offers a solid understanding of how the business has responded to change. 

All businesses are exposed to changes in the economic and competitive landscape. The years have revealed something very powerful that separates businesses that have thrived from those that have struggled or failed.

Thriving businesses are those that respond quickly and effectively to change. The ones that struggled were the ones slow to react. They may have ended up doing the right thing, but the delay is what did the damage.

The damage of reacting slowly to change accumulates over time, resulting in hundreds of thousands of dollars in lost profits. It's hard to quantify because no one ever takes the time to go back and look at what might have been. 

Budgeting, forecasting and business planning is not about looking into a crystal ball and predicting the future. It's about a process of understanding your business, injecting that understanding into your organization, developing goals that are aggressive yet achievable, building the capacity to achieve those goals and the agility to adapt quickly when things change. 

This sounds complicated, but it doesn't have to be. Experience shows that most business owners have at least an intuitive understanding of these things.

The next column will feature an examination of three principles to start effective planning for your business.

Allen Engstrom is Managing Director of CFO Network (www.cfonet.biz), specializing in providing outsourced accounting, consulting and business planning services to small and medium businesses of all types, locally and nationwide. He can be reached at 501-823-2363 or aengstrom@cfonet.biz.