A common frustration among small business owners is the lack of execution or implementation of their business strategy and objectives. In fact, they may have clearly articulated their vision for their business – their Big Hairy Audacious Goal – as James Collins and Jerry Porras put it in their 1994 book Built to Last: Successful Habits of Visionary Companies. But too often they feel stifled when it comes to seeing their stated business strategy come to pass.

And they’re not the only ones who see it; their employees do, too.
 

Business Intent & Your Mission

Make it so. – Captain Jean-Luc Picard, Commander, USS Enterprise

There is a planning concept that is used in the military commonly referred to as “Commander’s Intent”, or CSI. It is the idea that the commander, be it a General, Admiral, or even a lower echelon officer in charge of a particular operation, will articulate a high-level summation of the intended operation. In a business context it is the equivalent of the owner’s Vision Statement or business strategy statement.

Wikipedia has an entry which explains it this way:

Commander’s intent (CSI) plays a central role in military decision making and planning. CSI acts as a basis for staffs and subordinates to develop their own plans and orders to transform thought into action, while maintaining the overall intention of their commander. The commander’s intent links the mission and concept of operations. It describes the end state and key tasks that, along with the mission, are the basis for subordinates’ initiative. Commanders may also use the commander’s intent to explain a broader purpose beyond that of the mission statement.

So far, so good.

The “commander”, the business owner, writes out a business strategy statement and imparts this vision to his leadership team, his management team, and his staff. Everyone is inspired, excited, motivated and ready for something great to happen.

Time goes on.

A few initiatives are launched. Some processes are developed. Maybe a few new hires or capital expenditures are made. A little traction, a little activity, and then life gets in the way. Customers need to be taken care of. Things happen. But the main thing – the Commanders Intent – falls by wayside.

And time goes on.
 

Business Strategy vs. Business Planning

The commander’s intent was based on good intentions, but something was missing between developing a strategy for business growth and the actual tools, resources and processes for making the intent a reality.

There was no plan.

The business strategy was there. The vision was clear. The troops were on board. But no “battle plan” was written down and no tasks were delegated and scheduled. So nothing much got done.

And the troops got demoralized and disenchanted. The management got frustrated. And the Commander is not happy.
 

Plan your work. Write it down. Work your plan.

A business strategy is not as a plan. A plan is tangible. You can see it, touch it, read it, and pass it around. It takes your vision and your strategic intent, and makes it into a “project” and then breaks that project down into tasks. Big tasks, small tasks, short-term and long-term tasks. And even the task of managing and overseeing all the tasks.

A plan must be written down, but it must remain dynamic, not static. Just because you have a great battle plan doesn’t mean anyone told the enemy. And just because you have a superb strategic action plan for your business doesn’t mean anyone told your competitors. Or your customers, or vendors, or suppliers, or the weather, the economy, and so on.

You must be agile and flexible while retaining your “Commander’s Intent”. Even your business strategy and vision may need to evolve over time. But without a plan to guide you and your staff along the way, nothing will really happen.

You know that running and building a business isn’t easy. There’s much that goes into the work of each day, details to take care of, and all the important strategic work, like planning for growth, improving your product or service, and achieving a competitive position in your market.
 

The Value of Financial Management Systems

But taking time for essential strategic work when you have deal with the day-to-day details of your business can be a challenge. You can have that time, however, once you have effective financial management processes into place.

Financial management processes are “behind the scenes” tools that you use to move money into, out of, and around your business, and in the right place at the right time. You probably have some financial management processes such as a system for bank deposits, for ordering office supplies, and a payroll system, for example. And if they’re working properly, you probably don’t think about them.

This is where the value of financial management processes comes the forefront. Because these processes help your business run smoothly, they free you and your managers to concentrate on more strategic work. In addition, they create the link between your business activities and your accounting system.
 

Processes are Processes, Right?

What’s the difference between a financial management process and any other process in your business?

Most business processes, or systems, are focused on a result that your business needs in the key areas such as marketing, production, or fulfillment. These show up as advertising processes or your delivery systems, for example.

Financial management processes, on the other hand, involve the moving and controlling of money that all your other systems need in order to function. You can’t produce your product without money to buy materials and supplies. You can’t run your operation without money to pay the rent on your office space. You can’t advertise without money to place your ads. You can’t recruit new employees without money to search for qualified candidates.

Financial management processes support your other business systems by ensuring the right amount of money goes where it’s needed, when it’s needed. Consequently, it’s important to invest the time and effort needed to implement and maintain your financial management processes. With these systems in place, you’ll have a stable financial management foundation to support your future growth.
 

Managing Your Financial Processes

Keep in mind that, ideally, setting up financial management processes is not the job of the business owner or CEO. The truth is that, many business owners who set up their own cash handling, purchasing, payroll, and other systems find it challenging, at best. It can be somewhat like preparing your own legal documents, instead of hiring a lawyer.

If at all possible, your CFO should be responsible setting up your financial management processes, and your controller should then manage them. However, if you don’t have a CFO or even a controller, it’s wise to hire an outside expert such as a CPA, bookkeeper, or other financial consultant who has experience setting up these systems. It’s an investment that will easily pay for itself in the long run.

However, as the owner or CEO, you still have responsibilities for your financial management processes. It’s your job to give direction to your CFO about the type of financial management processes you want and to make sure that the systems that are in place are effective, well documented, and are helping you move the company closer to your vision for the business.

Delegation is not the same thing as abdication. In other words, while it is not your job to create and set up your processes, it is your job to determine the results you want and work with your team to make it happen.

As the business leader, it’s your job to set the expectations for how the financial management processes should run and to provide oversight of those systems.
 

Financial Processes Basics

No two financial management processes are exactly alike, but these fundamental practices will help ensure security and accuracy throughout your business. Here are some general guidelines you should be aware of when setting them up:

1) Make sure your source documents are accurate. Since your source documents are the “input data” for your accounting system, they must be complete and accurate. Otherwise, the errors or omissions will end up in your financial reports, creating false perceptions of your business health and progress – and you won’t be aware of it. You should automate the creation of source documents and store the information digitally. If they are not already, have your CFO and controller digitize your source documents when they set up your financial management processes.

2) Always have at least two people involved with financial processes. Two sets of eyes improves accuracy and reduces the likelihood of omissions and mistakes. Separate the approval for spending money from the actual money-spending activity, and the recording of sales from the deposit of money. If you don’t have a CFO or controller to act as a second pair of eyes, hire a third-party provider to help.

3) Use a business checking account to pay all company expenses. Never use cash or personal funds. Your company’s checking account is an effective financial control system that provides you with an automatic record of what happened to your money. While it’s common for business owners to mingle their personal expenses in with the business expenses, don’t do it!

Personal items paid for out of business funds impact the performance of your company. Many poorly performing companies are that way because the business owner is draining company funds for their personal needs.

4) Ensure that all data is forwarded to the accounting system. Your financial management processes become far less effective if the forms or other documentation generated are lost or misdirected. Digital document management systems, or ERP software, can automatically route information to the appropriate places, reducing time delays and the opportunity for human error. If you do use some paper documents, be sure everyone knows the routing process and timeframes for getting information to your accounting system.

5) Document your financial management processes in writing. The written documentation of your systems is what holds your entire operation together. Or it should be. If you’re dependent on “word of mouth” to make sure that people are following your systems, it will never be optimally efficient. Verbal directions are unreliable. And subject to forgetfulness, lack of clarity, misunderstanding, and misinterpretation.

Good documentation prevents your business from becoming overly dependent on a single employee. For example, if you would find it impossible to replace your CFO, controller, or bookkeeper because no one else has any idea what they do, you have a serious problem. Documenting processes and procedures in writing will ensure the success and health of your company.

Financial Management & Your Future

Once your processes are in place and working effectively, they should run almost seamlessly, behind the scenes. You won’t need to think about them on a daily basis. Instead, the reporting and monitoring systems that have been set in place will keep you apprised of your financial health. Ideally, you’ll be able to rely on your processes to allow you and your managers to focus on other vital aspects of your business.

With your financial management processes in place, working with your accounting system, you will be able to have accurate information when you need it, and put your time and attention towards more important matters like growing your business.

And that is where your time is the most valuable!

As a leader with a vision for your business you need a budget to plot your financial progress towards it. Budgeting helps you understand whether your vision is feasible or not. And it helps you plan the steps you need to take towards achieving it.
 

A Budget Supports Your Vision

For most business owners budgeting can be at the top of the list of things they don’t like to do. For them, budgeting properly is a pain. But this is usually the result of many experiences of trying to balance it, or forecast, to the penny.

Yet, while accuracy matters, what’s far more important is getting in the habit of routinely thinking about what’s up ahead operationally that will affect your finances. Getting into the routine of forecasting, then reconciling your forecast to your actual results, will build the connection between your business finance and leadership dynamics.
 

The Two Types of Budgets

The most common budget is the operating budget. It is typically used to forecast and track a company’s operations and is used alongside the income statement with net profit as the budgeted bottom line. The operating budget should sync well with your income statement, and your accounting system is almost guaranteed to provide you with the financial information needed for tracking and reviewing your budget. The operational budget is what most people are familiar with.

A capital budget is probably less familiar, on the other hand. This type of budget is used to track spending and depreciation relative to large capital expenditures, such as equipment and real estate purchases. It helps businesses determine their return on investment for these purchases.

Because these types of non-operating expenses typically don’t show up on your P&L, you can use a capital budget to plan for the cash required for the expenses that only show up on your balance sheet.

Businesses that forecast losses can also use capital budgets to track negative cash flow requirements. And start-ups often use capital budgets since they typically make a number of major investments during the first few years of operation.

While your own company will need an operational budget, your CFO, controller or even an outsourced accountant can help you decide if you also need a capital budget.
 

Four Steps for an Effective Budget Process

Budgeting isn’t something you just do once a year – or, at least, it shouldn’t be. You should schedule planning and monitoring cycles on a regular basis. These four steps explain the process you can follow and suggests which position in your company should be responsible for each task:

1. Set up the budget process. At the very beginning, you’ll have to decide on a budget schedule, categories, document formats, and who will be responsible for what. This is a management task that usually falls to the CFO, your controller – or both.
2. Plan and forecast. The leadership team, which is the CEO, or owner, the CFO, and any key managers, should handle this step. In every budget cycle, you’ll begin by planning and forecasting to build and guide your business in the following months. Construct your business plans using the budget numbers against which you will track your progress. You should conduct formal planning, forecasting, and budgeting sessions regularly — preferably quarterly or at least annually. Keep in mind that your budget forecast will not reflect the realities of your business unless you continuously fine-tune and adjust it as part of your ongoing monthly reviews.
3. Monitor and report. The controller will use your accounting system to gather and organize your actual results, and create monthly budget variance reports that indicate where actual results differ from your plan and by how much they differ.
4. Review and manage. The leadership team studies the controller’s budget and variance reports for insights on how to improve the business, spot problems before they become serious, and maintain a strategic picture of your business. In addition, you should review and confirm your budget forecast assumptions and revise them as necessary. Review your budget and variance reports with your key employees, make management decisions based on those reviews, and then execute those decisions.

Budgeting With Your Future In Sight

Improving your business budgeting process to incorporate your vision is a smart strategic move. Money is not only the fuel for your business today; it is the building material of your company for the future. As your business grows, approaches that sufficed in the beginning may not be sufficient going forward.

Your budgeting and financial planning processes must grow with the needs of your business today, and for the vision you have for the future.