I dislike the word budget. It suggests limitations, promotes a scarcity mentality and perhaps worst of all, it is boring. When is the last time you asked someone how things were going at work and they enthusiastically responded with “Fantastic! – I love the budgeting season, can’t wait to get started”?
I believe most small to medium-sized businesses budget once a year, if at all because budgeting is a tortuous exercise that makes it difficult to maintain a grateful, abundance-based mindset.
So, what’s the remedy? The surprising answer is – do it more often.
Focus on the Forecast
Imagine never again experiencing the annual budgeting torture. But instead, systematically gaining confidence in your business as you develop your ability to forecast the next twelve-months financial results at any point in time.
By regularly rolling your forecasts forward and using waterfall analysis to evaluate previous iterations – you will soon find ways to continuously improve the accuracy of your forecasts.
This exercise becomes especially beneficial to you as you and your Success Team advance your Exit Strategy. Valuation multiples are inversely correlated with the degree of risk, the lower the risk the higher the multiple – this is true across all ranges of multiples. By demonstrating that you accurately forecast future operating results on a regular basis you reduce uncertainty, and by doing so you increase the value of your business.
Understand Your Valuation
Another benefit of the rolling twelve-month forecast is that you are also keeping tracking of your trailing twelve months (TTM) results of operations thereby allowing you to track the increase in the value of your business month-over-month since valuation multiples are always applied the most recent twelve months of operations.
There is a multitude of inexpensive software solutions available in the marketplace today that (almost) makes child’s play out of rolling your forecasts forward each month, and despite that I still find most companies following the out-of-date paradigm of budgeting once a year.
Moreover, the new tools enable you to (i) concentrate on the structure and performance of your business, not on troubleshooting spreadsheets, (ii) build your forecast in days not weeks, (iii) perform dynamic what-if scenarios instantly without coding or programming, and (iv) automatically generate an accurate forecasted balance sheet and cash flow statement based on any model or assumption.
Annual calendar-based budgeting is comparable to celestial navigation using a sextant while rolling twelve-month forecasts begin to resemble real-time guidance systems.
It’s time for your business to upgrade!
Contact me for more information on effective forecasting, and rethinking the dreaded budget process.