do you eat your vegetables?

Posted by in Investing, Opinions

You’re never too small to forecast.

There are a surprising number of entrepreneurs I meet who seem to view forecasting/budgeting as a chore rather than a necessity.

It’s one of those regular scenarios where I seem like a dullard, old man, nagging about the need to do financial forecasting when the world of being an entrepreneur/start-up is more sexy than that.

Sorry.

But it IS vital. It is all very well being sexy right now, understanding your short-term priorities, your killer product developments in the pipeline and being delighted with the new recruits joining the team and the contracts you are winning.

But that excitement is short lived if/when you then fall over the edge of a cliff, over commit, mis-understand your cash flows and basically hit the skids.

I work with truly exciting businesses growing at 20%+ per month, all key metrics humming, except that cash is uber tight. The bigger the clients we sign, the longer they take to pay and the tighter our cash becomes despite growing our revenue and needing to grow our overhead in line with this success! 100%+ regular growth is a killer to manage (nice problem to have though).

Forecasting/budgeting is not something that an accountant does or a finance director produces in isolation. It is something that must be owned by the CEO and the entire Directorship of a company. It may seem like a turgid task but when you’re young and growing the thing that should be at the front of mind for all Directors in the company is ‘can we afford this’ and ‘does it put our survival at risk even when it is a positive decision’.

I cannot reinforce enough my belief that you should be running a minimum of a 12 month forward cash forecast, budgeting annually, revisiting the budget regularly and owning it across the team. To restate the point above, the budget/forecast is not the domain of the accountant.

Budget/forecast = lifeline = responsibility of the entire executive team.

There is no part of me that accepts that a CEO of a business of any size should not be able to answer, without reference to anyone else, the question “what is your forecast cash low, what are the cash risks in your business and how confident are you in your cash outlook”.

It may be a dullard topic and an unfashionable hat to wear. But I’m going to wear it. Like your parents no doubt used to say about vegetables “they’re good for you, eat them and you will grow up to be big and healthy”. Budgeting is your veg.