Archive for the ‘Budgeting / Forecasting’ Category

Financial Results & Operational Discipline.

September 22nd, 2009 Comments off

                I know I have touched on operational disciplines in past posts, but it’s time to revisit that topic again. What continues to surprise me is the lack of information that goes into making key strategic decisions, especially with respect to forecasting a corporate financial path. There are obviously so many things to take into consideration for this area, but simply, do you have timely & accurate data that will contribute to either the turnaround efforts for your company or the aggressive growth that you find yourself facing in the immediate future? Either way, if you lack the supporting data, you have nothing but an outlook of unsupported optimism.

                In consideration to a condition of aggressive growth, do you have the appropriate data to identify the specific growth drivers for your business, the margin performance of each one of the revenue drivers, and the recent trends of your operational expenses?  And I’m not necessarily referring to the data of last year or the first half of 2009, but also your most recent results. If you tell me that you’re still working on closing the books for the month before last then you’ve already got an embedded handicap in the decisions that you need to make. What if the most recent few months are at the height of your selling season? Since this is a common theme in the Retail and Apparel space, you better know what those results are since your entire year may hinge on those results.

                What if you’re in the midst of a turnaround and looking to reposition the company in all critical areas, which will likely include revenues, inventory, operating expenses, as well as vendor commitments?  If there is the need to work out plans with key vendors, make significant adjustments to the operating expenses, or other material decisions, do you have accurate & timely data support that decision making process?  It’s only through the timely collection of that data can you deliver a game plan that will be endorsed and supported by vendors, believed in by employees, as well as provide the foundation for executing the plan and moving the company back into a stronger position.

                You can only have this data if you have the processes and operational disciplines in place. You can’t risk putting yourself in a position where it takes month(s) to finalize your results, collect & analyze the data, and belatedly affirm any previous forecast you had in place. You need to know what the pulse is week-to-week, you need to have a handle on your period’s results within days, and finalized within a week(s). In this environment there is no room for complacency or the late delivery of information. There is too much riding on efficient execution. Any slips will affect the credibility you have with your employees, vendors, and ultimately may lead to the poor development or execution of your strategy. So what is it…are you actually executing or are you going through the motions of unsupported optimism?

Thanks for reading . . . .

Jeffrey Ishmael

Glad to see the Hockey Stick Forecast is alive & well….

July 30th, 2009 Comments off

     This morning I attended the 33rd gathering for the Growth Capital Conference in West Los Angeles, which is organized by the Growth Capital Institute. Aside from the standard self-serving pleasantries, which lasted the better part of 20-minutes, the conference showcased a presentation of 5 companies seeking growth capital. This was then followed by a 4-person panel discussing the current lending and capital environment. Although this was the first time I had been to this particular function, there were many of the usual suspects in attendance, which included the Tech Coast Angels, Pasadena Angels, Garage Technology Ventures, and various SBA reps. While a bit annoying at first, the lack of seating for an rsvp fee event was somewhat refreshing and the energy levels were high.


     Once of the greatest comments that was made to me by a successful business person, and later expanded on, was “Boring is not bad….”.  Well, that’s a bit of what we had this morning; some boring concepts, but not all bad. Unfortunately, what many of the concepts were lacking was the real “Wow” factor in their presentation and presenting the merits of their concepts in a simple 40k foot level. The presenters were give a simple parameter….7-minutes or less.  Many had problems staying within those confines and infused their presentations with too many details; details that could have been easily covered in a secondary meeting after capturing the attention of potential investors.  What was also somewhat amusing was the collection of hockey stick sales pr0jections without discussing any of the basic elements of a sales effort to achieve revenue goals.  In fact, one company even cited an 8x revenue multiple of a peer, from Q2-07, as a compelling reason for investing in their company. Don’t know if I’d be referencing valuations from 2-years ago….


     After the presentations were complete the conference transitioned to the panel of speakers, who would be discussing the current lending environment.


With regards to the SBA lending environment there were a number of points worth noting:

          Owners with an equity position of >20% are being required to provide personal guarantees on all loans.

          There is no longer 100% financing available.

          Start-Ups are requiring 30% infusion by Founders

          Ongoing entities are still only getting 80-90% with the remainder contributed by Founders.


     There was also a very consistent message by the panelists that they are only investing in entities where there is a unique proposition or offering. They are no longer investing in companies that are simply a variation of an existing and successful venture.  It was also noted, particularly by the Pasadena Angels ($25m / 65 deals) that they are doing more follow-on deals. While their investments in companies have doubled the number of companies in the portfolio has only increased by 50%. Further, the panel commented that “you can never assume that there will be follow-on financing and cite that as a basis for making an original investment”. They clarified that due to the environment, you need to make your investment decisions based on the merits and projections of the entity and not the hopes of bridging to more capital invested.


     Although a number of the discussion points were rather rhetorical, it was good to see the entrepreneurial drive alive and well at the conference this morning. It was clear that a number of the presenters really had not done their appropriate homework, or were being given some less than stellar guidance in their preparations, or just discarded that guidance outright. Regardless, I got a kick out of seeing that the Hockey Stick Forecast is still alive and well in funding presentations….


Thanks for Reading . . . .


Jeffrey Ishmael

Qualifying The Elements Of Your Forecast….

July 29th, 2009 Comments off

     We’ve recently began the process of transitioning to a 5-Quarter Forecast process, primarily to provide a greater level of insight to our Sales & Marketing folks. As we speak, they are already making trade show commitments, planning regional sales meetings, and finalizing ad placements. How can you be making these significant commitments without your plans in place for the following year? For the previous company I was at we were able to work under a more traditional annual budgeting process. This worked because we had a predictable activity flow, did not have large marketing or development efforts,  and we typically did not have more than 6-8 weeks visibility for our revenues due to the nature of the offering. But now, in the midst of a much more volatile & dynamic environment, not to mention, a Sales & Marketing calendar that is working almost a year in advance, such an approach isn’t feasible.


     As I regularly speak with folks in my network, which isn’t just inclusive of my finance friends, I’m surprised by the lack of information that is tabled/submitted with respect to qualifying a Budget or Forecast. I’m surprised that there are still Management teams that accept Budgets which don’t itemize the individual areas of growth or improvement for the coming year. How can you hold specific teams accountable if there are no specific actions tied to achieving the goals?  For instance;


          You’re citing revenue growth of 10%.

a.                   For the coming year have you itemized the various channels that will contribute to that growth, or taken into account any shrinking channels?

b.                  Have you timed the growth of your revenue to coincide with the calendars necessary to drive the growth plan?

c.                   Have you erred in forecasting a linear growth plan w/o even a plan to support that?


          You’re forecasting an increase in gross margin.

a.                   What are the contributing elements?

b.                  What are the non-recurring elements that will support the increase?

c.                   Have you reviewed the make-up of sales and looked at the margin quality of those transactions? Do you need to look at Domestic vs. Intl or any inter-group sales?

d.                  What portion of your increase is volume based vs. productivity based?

e.                   If productivity-based, what are the specific areas that you are targeting?


          Have you discussed your assumptions for OpEx with the rest of the team?

a.                   Do they buy into your preliminary assumptions or are you facing a potential shift in the business model that will necessitate new expenses?

b.                  Are there certain areas that need to be bolstered for a turnaround in 2010? Do your expenses support the revenue growth being projected?

c.                   Have you incorporated the necessary amount of consideration to mitigate unforeseen shifts increases?


     No matter what, you’re not going to be able to capture everything within your Budget. At a previous company, we received an unannounced increase in our utility rates from Southern California Edison. This happened a month after the Budget was approved by the Board. When your annual utility bill is $1.3 million, a 22% increase is not a minor element. We were able to make the necessary adjustments, but not without some difficulty for other areas. Whether you’re sitting in the CFO chair, CEO chair, VP of Sales or a Director chair, do you understand all the elements of your Forecast and are the assumptions that are incorporated sound? It’s redundant to start asking about why I may not be discussing other elements of the Budget, but again, this is the 40k foot commentary. Are you clear about the elements that comprise the foundation of your Forecast?


Thanks for reading . . . .


Jeffrey Ishmael

Your lack of planning is not my new “emergency”. . . .

April 28th, 2009 Comments off

     It’s really amazing how quickly you can progress from a rather nicely paying Project on a Friday afternoon to a complete implosion over the course of a weekend, culminating in a withdrawal from the project. I certainly wasn’t anticipating it, but that’s exactly what happened last weekend.  The crazy part about the situation is that it was really the product of two inappropriately worded emails outlining the disappointment in progress and the lack of execution to date. Funny, while discussions had been happening the better part of 6-8 weeks, the engagement wasn’t supposed to start until May 1, and the majority of the time until now had been gratis…or perhaps “ungratis”.

     The entity I had been having discussions with was effectively a 3rd round funding candidate who had developed a pretty fantastic product, and in the characterization of any MBA student, was looking to legitimately be a “disruptive technology”.  They had been able to keep their operations lean and were making effective use of existing cash resources. However, as early as the open of Q1 it was clear that they were going to need to bring in additional operating funds. However, there was an incumbent “CFO”, who really did not have the background for the position, but nonetheless was tasked with the responsibility. Quite simply, the Company had an obligation to support this individual so long as they allowed him to remain in the position. Unfortunately for the company, and their need to aggressively pursue additional funding, there were no results on the part of the incumbent. The Company finally decided last week that they wanted to move forward with an agreement that would have me pursuing funding (#1 priority), but would also be setting the foundation for the broader finance function within the company. From the development of a new software platform, to the tracking of cost standards, the development of all their financial reporting, to representing them at certain investor events. This was all last week.

     Within the span of 72-hours after having my first on-site meeting after agreeing to the engagement, I immediately was being called to task as to why the fundraising wasn’t happening in a more agressive manner, that I had been provided all info over the preceeding 6-weeks, and questioning whether I was truly committed to the project. Did I miss something, or did we just agree on a May 1 start to the project?  The wording of the emails was also strong enough, and disrespective enough, that I knew immediately that this was not a long-term engagement I wanted to be a part of.  I was basically being held responsible for the inactions of a previous incumbent and the lack of action on the part of founders to ensure that their financing goals were on track for achievement. The situation was no different than missing key patent filings over the last quarter, hiring a new VP of Design/Engineering, and asking why patents weren’t filed….before their arrival.

     There’s no question working in the role of Finance, we are all accustomed to having to deal with emergencies and having to reprioritize tasks as conditions shift. However, there is also the element of appropriately placed accountability and following up on deliverables that were properly planned for.  It’s also quite clear, that even with proper planning, certain goals aren’t achieved, and that strategies need to be altered. However, a complete lack of planning, a lack of collaboration with current staff, and not supporting them in the necessary way does not translate as my emergency and something new players should be held accountable for. High caliber Finance consultants can provide solutions, but when the work is conducted under a condition of desperation, the results will never turn out positive, and quite often, result in the least desirable situation.

Thanks for reading . . . .

Jeffrey Ishmael

Resource Management – Steel trap or steel sieve?

April 10th, 2009 Comments off

     The last Quarter has seen no shortage of financial folks in my network asking about my perceived prospects for the rest of the year. Unlike many others out there, I am not going to make any predictions for what lies ahead for the rest of the year. As of now, I am treating each Quarter as a new battle with different conditions that will have to be dealt with and the need to employ an altering strategy. The analogy that I continue to reference is that we are living a lesson in Darwinism and only the fittest will survive. There is no room for complacency.

     With that in mind, I treat each day as an opportunity to review the deployment of our resources and determine if our capital is being utilized in the most efficient manner. Whether this is in the form of headcount, operating expenses, small capital purchases, or vendor contracts, the week:week management of these resources will determine if we are going to make our Quarter. Don’t get me wrong, I am certainly not micro-managing and losing sight of the longer-term picture by playing in the weeds all day. However, as I’ve written in a previous post, it’s about those smaller incremental Base Hits than going for the huge home run. We are managing our resources with the approach of a steel trap and not letting our results get diluted through smaller expenses trickling through because they fall below the radar.

     Fortunately, we have a great team and there is little concern that needs to be placed on our personnel. While there’s always improvements that can be made to productivity, we’ve made huge leaps over the last 8-months. Our spending is significantly down over the prior year. We’ve implemented new payment terms with vendors that allow us to take early pay discounts, which were previously non-existent. We’ve brought our inventory levels down by over 30% on a year-over-year basis, while being able to achieve an increase in sales.  These results are only achieve with a strong discipline, short-term management of resources, and a long-term goal that is clear to all employees.  There’s no question we’re operating with a steel trap mentality. How are you managing your resources ?

Thanks for reading . . . .

Jeffrey Ishmael

The Q1-09 door is closing – Are you on target?

March 27th, 2009 Comments off

     Between a DJIA that dropped into the mid-6,000 range, a continued loss of jobs, ponzi schemes that seem to be coming up left and right, there is certainly no shortage of news events to distract us from the job at hand. While I am normally one to go through every peripheral news source and scan for info that might give me cause to adjust forecasts or gain some insight into sales channels, it seems most of the news lately has been more of a distraction. I’m not exactly sure when the switch was flipped, but it seems for the most part I have shut most of the information out and have retrenched and narrowed the focus to only what is happening in my specific industry. Right or wrong, that’s my approach right now.

      Not sure if it’s a source of validation, but we are coming up on the close of Q1 and have only a few days left to get last minute orders out the door. I am pleased to say that Revenues will hit our expectations, employee morale is good, Operating Expenses have been kept in check, and we will actually pay out nominal bonuses in Q1. No, I’m not particularly worried since hopefully nothing that will occur in the last 3-days will change what has already happened in the first 87-days of the Quarter. Staying focused on our target was not something that started in the last few weeks, but something that started in the first week of January. Monitoring open orders, monitoring incoming shipments to see what might be late, contacting customers to confirm order activity, reviewing A/R activity to monitor collections…and the list goes on. Nothing can be left to chance in this environment and you have to proceed as if the entire existence of the company and achieving your annual goal will hinge on what happens each week, and cumulatively, each the month.

     We’ll close the Quarter next week, we’ll validate our assumptions regarding Q1, and determine if we need to alter those assumptions in any way going into Q2. Don’t get me wrong, it’s something we’ve already had discussions on and incorporate into our weekly discussions. Where are we against Budget? Slightly off, but then again, I’ve written about the Budget, how that document is dated from the time it’s published, and where I then put a heavier reliance on the Forecast in order to incorporate unforeseen elements in the market that weren’t there during the budgeting process.  With respect to your company’s results, hopefully you already know where you’re going to finish and are already far into discussions for Q2 activities….because it’s already here.

Thanks for reading. . . .

Jeffrey Ishmael

My final views on Executive Dashboards….

March 17th, 2009 Comments off

            My last two postings spent a little more time summarizing the different approaches that can be taken in developing an EIS platform. In this last installment I want to discuss the remaining elements that I chose to include in our first generation rollout. In the last posting we discussed the approach to Order / Revenue reporting.  Now it’s worth summarizing my approach to Operating Expenses, Balance Sheet, and Ratios. Again, it’s worth noting that this level of reporting is intended to only provide a quick “temperature” on what is happening with the Company.


            With respect to Operating Expenses, I chose to include this area since there’s always a need to keep tabs on major expense areas. I’m not interested in just a blended topline number, I’m interested in knowing what is happening in key expense areas. Out of the dozens of expenses, I chose to include only 12 that I would want to track on a constant basis. These ranged from 3rd Party Logistics, Advertising, and Bad Debt, to Professional Services and Travel. However, while the remainders of our reporting metrics will be reported on a weekly basis, these are only being updated on a monthly basis. Then why don’t we just hold this for review in our standard financial reporting? I chose to include because I want our OpEx to be a constant data source that our entire team will be conditioned into being sensitive to and not paying attention to on strictly a monthly basis.  With the reporting of the 12 areas I chose, we’ll be able to have constant oversight on almost 85% of our Operating Expenses.


            Next up, I wanted to focus on Balance Sheet accounts.  Again, I wanted to focus on those areas that should be tracked on a constant basis and not lost sight of.  We’re obviously following Cash/Cash Equivalents and Inventory, but I’ve taken a slightly different approach for A/P and A/R. For our Receivables, I chose to focus only on the 90+ column. We’re routinely seeing accounts in the Current to 60-day column, but my blood pressure starts going up when they hit the 90+ column.  I want to know if this column is growing.  Similar approach on the Payables side. I want to know if our A/P group is behind in paying vendors or if we are staying current, which is why I chose to follow the Past-Due column. Similarly, I will also be following the amount of early pay discounts that we are taking with vendors.  I want this number increasing every week. Since we have the ability to easily meet payables, I want to push the calendar a little more and start taking discounts.


            Last, but not least, were the E-Commerce/Dealer metrics and the basic financial ratios. I chose to include newly opened dealers, closed dealers, inactive dealers, as well as 5-key metrics for our E-Commerce efforts. Considering the current environment, I kept the financial ratios to the top level considerations of working capital rations, DSO, inventory turns, etc..  As mentioned in my first post, the intent of an EIS platform is not to be a data dump.

            -It’s intended to give a very top level view of what is happening with the Company.

            -It’s not intended to replace any of your financial reporting.

            -It’s intended to be an indicator of what further reporting needs to be addressed if there is a problem.

            -It’s not a static tool, but one that is dynamic to the needs of the Company.


Thanks for reading . . . .


Jeffrey Ishmael

It’s December & the Budget isn’t finalized…?

December 10th, 2008 Comments off

Needless to say the last month has been extremely hectic trying to reengineer the financials of a new company, as well as trying to finalize the 2009 Budget. While it’s kept me from regular updates on the blog, it’s been a great exercise in a truly unique economic environment. As of now, I am looking to present the final 2009 Budget to the Board next week for approval. If this was any of the prior years I had gone through the budgeting process I would have been infuriated if the Budget had not been completed by the beginning of Q4, but then again, this is no ordinary year.

Considering that we are focused within the Retail / Apparel sector, we have obviously been closely watching the retail comp results of the last quarter and trying to anticipate the impact to our own business. Fortunately, one of our larger customers, Journeys, has been posting positive retail comps, which has been a bright spot in the Genesco portfolio. However, others have not been so fortunate. We also distribute product through the “Core” channel, which is primarily comprised of “Mom & Pop” shops, which have exhibited some surprising resiliency over the last half-year. Clearly, this holiday season will be the true test for them. Regardless, we have ended up using every bit of time in this calendar year so that we can finalize and commit to a 2009 Budget that is as accurate as possible and not having to explain obvious variances for the remainder of the year.

One of the more challenging fronts has been the International side where we distribute product through more than 45 countries and negotiate our transactions in both the U.S. Dollar and Euro. For our Euro accounts, although we have had discussions with some of our customers about decreased purchasing power and weakened markets, those customers have also shown surprising resiliency. However, for those subject to exchange rates based on their native currency, there’s a different story. We’ve seen decreases of any where from 25% in the U.K., to 40% in Australia, and outright currency freezes in a number of other countries. Will the currency situation reverse as the oil situation did from its highs this year? Hard to say, but at this point we’re planning for an “As-Is” scenario.

So as we move into the final weeks of 2008 and prepare the final Budget for submission to the Board, I’ve been able to effectively incorporate the conditions currently reflected in our sector, which would not have been included were the Budget completed at the beginning of Q4. We’ve made changes to all aspects of the Budget and will be moving into 2009 with a degree of confidence knowing we’ve been able to reflect all aspects of the current environment. We’ve also had the luxury of being a smaller company and having the agility of moving quick to adapt to market conditions, which is much more difficult in a larger entity. So yes, it is December and only now is my Budget being finalized. When was your Budget completed? Are you going to spend the year explaining countless variances or have you been able to incorporate current market conditions?

Thanks for reading . . . .

Jeffrey Ishmael

Do you have a fiscal strategy or fiscal workout?

October 25th, 2008 Comments off

Every so often we’re reminded about the need to have a specific plan in place, and without that plan, you’re not going to achieve your ultimate goals. I’ve seen this play out in two different ways over the last few weeks. One was my recent commitment to race the Southern California Time Trial Series this year, while the other is my new position as the CFO of a small footwear manufacturer.

Let’s start with my cycling training. I have all the top tools that would enable me to have specific and regimented training programs. I have PowerTap wheels for both my roadbike and TT bike, the latter a PowerTap disc. I have all the latest software to analyze my wattage history and taper accordingly. My wattage levels have been great. However, I hit the first two races and they were an utter disaster. I finished outside of the Top-5 and was not awarded points. My wattages during the race were 15-20% below my recent results. So….the local shop Pro tells me I was probably overtrained and not rested enough. He set me up with a daily program that I have been following diligently every day. While the “numbers” tell me my fitness is dropping, the legs feel fresh and strong. At my last race, I raced in the Pro 1/2 class, received points for second, and set a personal course record. Go figure…..

Carry the same analogy into my new company and I’m finding a team that is working very hard to make sure they hit their annual goals and achieve whatever level of profitability they can. However, just like my previous training plan, there were no day-to-day specifics, or in this case, month-to-month specifics. In particular, the Finance team does not have a forecasted P&L, there are no cash flows, there are no specifics as to how they will move back into profitability, and a host other non-existent reporting tools. The great news is, as I was, they are very willing to change and aware that they need to in order to achieve their necessary results. We are already putting some of the necessary plans in place and I’m very optimistic about the 2009 outlook. In a handful of weeks we already have reconfigured P&L info, we have a preliminary 2009 Budget, and we’ve identified a number of areas that will provide us additional product margin or expense improvements.

In both these cases, we were both working extremely hard but just not getting the necessary results. The effort was there, the necessary tools were there, the skill set was there, but what was lacking was a specific plan. In my case, it took a fellow competitor to bring out my best, while in the case of my new company, they hired me to bring out the best in them….and I’m looking forward to the results on both. So ask yourself – Do you have a fiscal strategy or fiscal workout?

Thanks for reading. . . .

Jeffrey Ishmael

Sales & Ops Planning: Where do I start . . .?

September 16th, 2008 Comments off

My apologies again, but it has been a very hectic couple of weeks between a client project and possible career considerations. But let’s jump back in with a link to our last post of Sales & Operations Planning (S&OP). As I’ve mentioned, this is not a simple process and will reach across the entire organization. In my last post I outlined the significant funtional areas that will be involved in such a project. Let’s keep pushing down and look at some of the steps involved and where we’re headed in our further analysis.

Please note that each one of the areas listed below is an entire discussion in themselves and deserving of a dedicated post. However, there are 5-key steps that that fall within the S&OP process. These steps include:

1. Data Gathering.
2. Demand Planning.
3. Supply Planning.
4. Preliminary S&OP Review.
5. Executive Review.

The amount of data that will contribute to this process is extensive and will range from your closed financials, to bookings, pending projects, and other considerations potentially affecting the Forecast. The data gathering will extend into data points relative to the Production process and the ability to deliver on Forecast in the necessary time constraints. There will be various time considerations with respect to the short-term and long-term goals, both of which will be considered in this process.

When I was first brought in to be a part of this process, I had no prior S&OP experience and was a bit frustrated at being pulled away from my “core duties” and having to spend time on a process that seemed more “Production-oriented”. However, it didn’t take much more than the project introduction to see the value that this project was going to play in the validation of our financial forecasts and to bring an even higher degree of accountability and transparency to the planning process. It also further strengthened what was already a healthy relationship with the Production department. From a Finance-perspective, it allows for a much higher level of information support and accuracy in budgeting, forecasting, and more importantly, working capital management.

Thanks for reading . . . .