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FINANCE |
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Financial Forecasting: Is There a Better Way? |
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Some business owners react to adversity like the impulsive person who buys a four-wheel drive vehicle after a late winter blizzard - when springtime is right around the corner. Rather than panic and needlessly overspend, the superior entrepreneur is guided by a plan. A financial forecast is the perfect tool for this plan.
A financial forecast presents prospective revenue, expenditures, and resulting cash flow. Most importantly, it conveys capital inflow needs and indicates when those needs are expected to arise. The forecast alerts you to make adjustments in areas you control when surrounding circumstances vary from your estimates. As actual events unfold, any deviation from the forecast is cause for corrective action.
Creation of a financial forecast is often an unfulfilled goal because the process is bounded by uncertainty. The forecast is based on estimations about a future that is always somewhat unpredictable. Therefore, a sound mechanism for maximizing the reliability of estimates is essential. Business owners can utilize one of two methods to construct their forecast: top-down or bottom-up.
Top-Down
Most small-business operators deploy top-down forecasting. This method starts with an estimation of the top line-item in a forecast-revenue. A common practice is reliance on past revenue. Added to this figure is an optimistic amount of growth. Sometimes future revenue is projected based on anecdotal evidence about the performance of similar companies in your industry or local competitors. Top-down forecasts frequently estimate the size of a customer market and the expected share of this market the business will capture.
A problem with this analysis is that industry trends constantly change. Failure to consider the direction of change is a major drawback. Moreover, top-down forecasting is especially difficult for businesses with limited histories on which to base estimations of market share.
Hence, a dependable top-line number is very elusive. When actual revenue strays from the predicted top line, the foundation of the entire forecast is skewed. You constantly adjust the financial forecast with new wild guesses.
Bottom-Up
A bottom-up approach to forecasting takes you out of the backseat and into the driver's seat. This technique ignores guesswork about market size and market share. Rather, it considers the resources at your disposal and identifies projected revenue based on what you have to invest in the business.
Consider how many sales you can make utilizing your available time and money. With this information, you determine the number of customers you're likely to capture and identify revenue by multiplying by the average price each customer pays.
Key to bottom-up financial forecasts is what drives your sales. This could be advertising expenditures, rent for an optimal physical location, investing in an efficient inventory tracking system, spending on tools needed for project completion, or reserving funds for necessary business travel. Comparing your eventual revenue and expenditures to forecasted figures reveals the true relationship of spending to revenue. This permits sensible modification to your financial forecast. You uncover what revenue to truly expect and how much additional investment is needed for robust growth. |
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HEALTH AND WELLNESS |
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| The Cure for CSM (Chronic Survival Mode) |
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Anxiety, fear, worry, uncertainty, and even depression can cause the brain to go into survival mode.
Human beings are hard-wired to respond to threatening and stressful situations with both physical and emotional defense mechanisms. When in so-called survival mode, some regions of the brain are suppressed while others become hyperactive. Senses are sharpened as the body gears up for fight or flight. The capacity for careful deliberation, high-level thinking, or thoughtful problem solving is impaired.
When you are in survival mode, clarity, focus, and purpose go out the window. You may say or do inappropriate things, make snap decisions that you later regret, or become mired in indecisiveness and inaction.
We all slip into survival mode from time to time. For some, it becomes a way of life. Fortunately, there are some things you can do to work your way out of chronic survival mode.
For starters, pay down debt. Debt and financial worries are among the greatest causes of chronic stress and worry. Take time each day to consciously relax through prayer or meditation. Seek out opportunities to educate yourself and to learn new things.
Additional tips:
- Establish a regular exercise regime.
- Consume protein-rich foods.
- Listen to music.
- Read uplifting content.
- Do something positive or beneficial for someone else.
- Evaluate what you really need in life and what kind of person you want to be.
With intention, you can get out of chronic survival mode and tap into your inner sources of composure and strength. You are the designer of your destiny, and you have the power to live every moment of your life on your own terms. |
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HOT BIZ TRENDS |
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Hacks to Help Enhance Your Memory Skills |
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Whether a person is born smart, or intelligence can be developed, it's clear that smart people are good at accessing the information they've learned.
In other words, smart people have good memories.
Since memories form in your brain, a good memory requires good brain function. This starts with a healthy diet and healthy lifestyle, but there's more.
Researchers tell us we can improve our information recall by reinforcing neural pathways with techniques that are proven to enhance memory retrieval. The first and most important sounds like a no-brainer: pay attention.
Clearly, focus is important, but did you know you can improve focus by involving all your senses?
The more senses you involve, the more your neural pathways are reinforced. It's a lot like wearing a path in a rug: footprints quickly disappear, but a well-worn path does not. Repetition helps deepen the memory, so try to touch it, taste it, smell it, and see it. Repeatedly.
In their book Make it Stick: The Science of Learning, psychologists and coauthors Henry Roediger and Mark McDaniel offer a number of suggestions such as avoiding distractions, connecting a new idea to something you already know, or using an acronym to make the memory stick.
Many psychologists agree. In PsychCentral, John M. Groho writes that we can improve retrieval by forming associations and repeating information.
He notes that we should chunk information into small, digestible pieces we're more likely to remember.
In essence, a few simple tricks are sure to improve your memory. Don't forget! |
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FINANCE |
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| Link Financial Reports for Long-Term Success |
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A business owner's singular focus on revenue commonly results in false interpretations. Long-term prosperity requires management of risk. That process demands knowledge of all operational variables, including costs, assets, and debt.
Wise entrepreneurs differentiate themselves from the mass of people who respond to financial records with blank stares. Rather than seeing mere numbers on pages, a business manager visualizes an interconnectedness of various reports that paints a picture of current conditions. Here's how:
1. Review reports: Accounting software has relieved business operators of the burden of compiling financial statements. Since these records simply come together when transactions are recorded, ignoring them is a strong temptation. Instead, the wise entrepreneur uses the time saved on this process to frequently examine financial reports.
2. Connect the dots: An Income Statement shows revenue and expenses. The resulting profit or loss carries over to Retained Earnings on the Balance Sheet. Profits producing positive Retained Earnings are offset on the Balance Sheet by increasing Assets. Knowing which of these was acquired with profits is crucial to uncovering where the money is going.
Losses or lower profits on the Income Statement reduce Retained Earnings. The Balance Sheet shows either fewer assets or higher debt. Frequent examination of the Balance Sheet allows business owners to identify what's occurring in the relationship between revenue and expenses on the Income Statement. This examination provides the data needed for accurate interpretation and continued business success. |
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Michele Ball
Perfect Additions and Your CFO Solutions
401 Market Street
Suite 980
Shreveport LA 71101
318-423-4776 Office |
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| www.yourcfo.solutions |
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| info@yourcfo.solutions
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| License # 616085 |
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| How to Win Big in Today's Economy |
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| The altered economic landscape presents innovative and nimble businesses
with opportunities to thrive. |
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| Find out how by requesting my free report "How to Win Big in Today's
Economy" by replying to this email." |
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| Just reply to this email and I'll send it right out to you. |
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| Quick Quiz |
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Each month I'll give you a new question.
Just reply to this email for the answer.
Who said: "A rose by any other name would smell as sweet?" |
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| Worth Reading |
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One Behavior Separates the Successful from the Average
By Benjamin P. Hardy |
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The Mission
Many people do only what they are asked to do. They accomplish the bare minimum. Achievers are proactive. They initiate things, ask questions, offer to help, pitch ideas, make recommendations, and influence others. They are active, not passive. Initiation always involves some degree of risk, but it's what separates leaders from followers.
How to Hire Great People
By Oleg Vishnepolsky
LinkedIn
The idea that one can assess a job candidate in a brief interview is misguided, according to Vishnepolsky. Interviewing is not speed dating, and many qualified people do not perform well in interviews. He advises employers to reverse the process and let job candidates conduct the interview. Invite them to audition by producing a project plan, making a sales call, or solving a business problem. This puts the focus on the candidate's potential, not simply on existing skills.
Make Strategic Thinking Part of Your Job
By Ron Carucci
Harvard Business Review
Top executives often spend more time on trivial and tactical problems than on strategic thinking. Carucci urges executives to extract themselves from day-to-day problems and focus on work that aligns with the company's strategy. To do this, they need to be armed with insights that enable them to focus resources appropriately. They also need to build a coalition of support by encouraging others to challenge them to improve their strategic thinking.
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LINKS YOU CAN
USE
This Month: Strategic Thinking |
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As an entrepreneur, you have a lot on your mind. As you oversee planning, provisions, payroll, and the putting out of fires, you may have little time left for strategizing. When you do have time for strategic thinking, you may not know how best to use it. Yet proper strategic thinking is key to driving your company. Following are a few helpful tips to cultivate this important piece of business success.
Are you a strategic thinker? How do you know? Discover the four essential elements of strategic thinking.
4 Elements of How Mentally Tough People Think
How do you define "strategic thinking"? Many people get it wrong. Debunk the mythical definition here:
Three Myths About Strategic Thinking
Are your current marketing and design strategies in alignment with the latest trends? Find out here:
The Power Of Strategic Design Thinking
Truly strategic thinkers develop crucial habits that lead to success. Here are six:
6 Habits of True Strategic Thinkers
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