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In Financial Planning, Forecasts and Projections Aren’t the Same

Businesses are rightly encouraged to regularly generate professionally prepared financial statements. Doing so is important for both understanding your own financial position and providing accurate, comprehensive information to stakeholders such as investors, lenders and advisors.

However, keep in mind that financial statements are historical records. They depict the state of the company at a given point in time — not where it will likely be in the future. For the latter purpose, you need to create either a forecast or a projection. But aren’t those two things the same? Not exactly.

Defining the terms

The American Institute of Certified Public Accountants (AICPA) addresses the distinction under its AICPA Attestation Standards Section 301, Financial Forecasts and Projections. The organization differentiates the two terms as follows:

Forecast. Prospective financial statements that present, to the best of the responsible party’s knowledge and belief, an entity’s expected financial position, […]

By Linkenheimer LLP|2023-06-19T19:13:38+00:00June 19th, 2023|planning, strategy|0 Comments

Why Businesses May Want to Consider ESG in Strategic Planning

When engaging in strategic planning, business owners and their leadership teams must consider various factors. These commonly include the state of your industry, the national and local economies, the company’s financial position and cash flow, and opportunities in the marketplace.

However, in today’s world, where transparency is everything, another factor that may be important for some companies is a clearly defined approach to environmental, social and governance (ESG) issues.

3 areas of focus

As a general concept, ESG (as it’s often called for short) focuses on three areas:

The environmental component considers your company’s impact on the environment, including the energy it uses, the waste it produces and the resources it consumes.
The social element examines your business’s relationships with people, communities and institutions. It includes fair labor practices; worker health and safety; diversity, equity and inclusion; and your company’s impact on the people of the community or communities where it operates.
The governance portion includes policies, practices and procedures your business adopts to govern itself. Considerations include ethics, transparency, legal compliance, executive compensation, supply-chain management, data protection, and product quality and safety.

The idea is that, to be a good “corporate citizen,” it’s important to recognize the impact of […]

By Linkenheimer LLP|2023-06-07T19:27:01+00:00June 7th, 2023|business, planning, strategy|0 Comments

The Balanced Scorecard Approach To Strategic Planning

In the early 1990s, the Balanced Scorecard approach to strategic planning was developed to enable business owners to better organize and visualize their objectives. With 2021 shaping up to be a year of both daunting challenges and potentially remarkable recovery, your company should have a strategic plan that’s both comprehensive and flexible. Giving this methodology a try may prove beneficial.

Areas of focus

The Balanced Scorecard approach segments strategic planning into four critical areas:

1. Customers. Every business owner knows the importance of customer satisfaction but, to truly know and fulfill customers’ needs, you must identify the right metrics that measure it. Also identify the types of customers you want and, more important, can best serve.

Key question to ask: To fulfill our strategic objectives, how can we attract and retain the customers that build our bottom line?

By Linkenheimer LLP|2020-12-28T22:06:40+00:00December 28th, 2020|business, small business, strategy|0 Comments

Re-Evaluate Your Company’s Competitiveness In A Changed Economy

Just about every business owner’s strategic plans for 2020 look far different now than they did heading into the year. The COVID-19 pandemic has changed the economy in profound ways, forcing many companies to recalibrate suddenly and severely.

As your business moves forward in this uncertain environment, it’s important to re-evaluate competitiveness. You may have lost an edge that previously existed, or you may have the opportunity to gain one. Here are some critical elements to consider.

Objectively assess leadership

More than likely, you and your management team have had to make some difficult decisions over the last few months. Even if you feel confident that you’ve done most everything right, objectively examine and discuss your successes, failures, strengths and weaknesses.

For instance, maybe you’ve had some contentious interactions with employees while adjusting to remote work environments or increased safety protocols. Ask your managers whether underlying tensions exist and, if so, how you […]

By Linkenheimer LLP|2020-09-03T20:02:26+00:00June 18th, 2020|business, strategy|0 Comments

At the Very Least, Update the Financials in Your Business Plan

Every new company should launch with a business plan and keep it updated. Generally, such a plan will comprise six sections: executive summary, business description, industry and marketing analysis, management team description, implementation plan, and financials.

Now, ideally, you would comprehensively update each section every year. But if the size, shape and objectives of your company haven’t changed all that much, you may not need to make major revisions to the entire plan. However, at the very least, you should always review and revise your financials.

Explain your route

Lenders, investors and other interested parties understand that descriptions of a business or industry analysis may be subject to interpretation. But financials are a different matter — they need to add up (literally and figuratively) and contain realistic projections in today’s dollars.

For example, suppose a company with $10 million in sales in 2019 expects to double that figure over a three-year […]

By Linkenheimer LLP|2020-09-03T20:03:33+00:00October 23rd, 2019|business, planning, strategy|0 Comments