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Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "Business Valuation Through Forecasting" »

Budgeting and forecasting are vital tasks for the running of any business. These necessary functions provide information that guides the decision-making process all year long. One such piece of information is how much a business is currently worth, and how much it is expected to grow over the budget period.

Business valuation can be performed via a method known as the discounted cash flow technique. Using the data from your company’s cash flow forecast, you can do the math that will allow you to see exactly how much your business is worth.  Here’s how it works.

1. Find the forecasted free cash flow.

Make your cash flow projection based on income history, upcoming marketing campaigns, and production plans. Then refine this data by subtracting taxes and projected costs. This gives you your forecasted free cash flow.

2. Calculate your discount rate.

First, determine your weighted average cost of capital by adding the current value of your company’s equity, debt and preferred stock, and then dividing each of these by the total. Then multiply the number you calculated for equity by the cost of that equity, divide your result for debt by the current tax rate, and divide the answer for preferred stock value by the cost of the stock. Add these together to create the discount rate.

3. Determine your company’s terminal value.

Divide your company’s earnings before taxes by the previous value of your business, and then multiply the answer by the combined estimated value for the final year of the forecasted free cash flow projection. Then subtract the weighted average cost of capital from the total, to get the terminal value.

4. Find your company value.

Multiply the free cash flow and the terminal value by the discount rate to determine their discounted values. Those discounted values then give you your company’s cash flow growth and your projected company value, respectively.

5. Calculate your company’s stock value.

Finally, the combined projected value of your common stock can be determined by subtracting the current values of your company’s debt, preferred stock shares, and other liabilities, from your projected company value.

Calculations like these can be time-consuming and error-prone when done without using a dedicated forecasting solution. In order to quickly, easily, and most importantly, accurately determine your company budget, projected free cash flow, and company value, your best bet is to make use of a business budgeting and forecasting product like True Sky.

True Sky reduces the effort required to manage your processes through the use of centralized control, dynamic security models and reusable content. It provides users easy access to data input forms and analytical reporting, and makes the entire process so simple that it allows your organization to switch their focus from data capture to performance management and information analysis, which can be used to move your business forward. For more information about how we here at TGO Consulting can help you streamline your budgeting and forecasting processes, and make valuation of your business simpler, contact us today.

Posted by & filed under Budgeting and Forecasting, Events and Conferences, True Sky.

Read more on "Attending the CPA Ontario’s Conference for Controllers?" »

Join True Sky at the CPA Ontario’s Conference for Controllers!

The CPA Ontario’s Conference for Controllers offers the best for those aspiring to controller positions, and those who are seasoned professionals. The 2015 conference provides a forum to share ideas, explore the latest developments in the industry, and an opportunity to network with peers and colleagues.

Date: March 12-13, 2015

Location: International Plaza Hotel, Toronto

What to Expect at the Conference for Controllers:

  • Presentations on HR fundamentals, how to manage and motivate in the workplace, and more
  • Extensive networking opportunities
  • Gain insight from industry leaders
  • Earn CPD credits

Don’t forget to come visit the True Sky booth!

Let the True Sky Team show you how

  • People are doing their budgeting versus how they should be doing budgeting
  • You can visualize your data with custom dashboards and charts
  • To streamline your budgeting process
  • Companies like yours have transformed their approach to the budgeting process

Unable to attend the Conference?

Register for our Budgeting Best Practices webinar.

 register today for the CPA Conference for Controllers



Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "5 Essential Questions To Ask When Choosing A Budgeting and Forecasting Solution" »

Choosing new software to handle your company’s budgeting and forecasting activities is not an easy task. Between finding something to suit your unique needs and wading through the multitude of products available, it can be overwhelming, to say the least.  But if you know in advance which questions to ask, the process becomes much more streamlined – and produces much better results.

The following five questions should be addressed by any CFO looking into new budgeting solutions, in order to ensure the right fit.

1. What is the rationale behind this purchase?

The most basic question needing to be answered is why you are buying the budgeting software in the first place. Are you looking for greater efficiency? A product that gives you more insight into your finances? Once you’ve determined the reason for your purchase, you can narrow the field down to products that will provide exactly what you need.

2. What is the business case for this expenditure?

Now that you have the main reason for the purchase set down, take a step back and look at other strategic objectives of this purchase. What needs have senior executives expressed that could be addressed with this new budgeting and forecasting solution? What about other departments? Which ongoing performance improvements could be achieved by the new software? Gathering this additional data will also assist in your search.

3. Which products will fit into our existing IT set-up? 

This may be one of the most important considerations of all. If your existing infrastructure won’t support your choice of software, then it will do you no good. And if a certain forecasting product presents a conflict with current vendors, you may have to work that out before implementing anything new. Check and double check that everything will mesh seamlessly with your company’s system.

4. What will the TOTAL cost be?

Is every functionality you need included in one solution, or will you have to buy multiple products in order to get the right fit? Will your team need training in order to use the new budgeting software, or is it intuitive? Don’t look at the simple price tag alone – consider the total cost of implementation as well as the cost over time.

5.  Are there customer reviews available from companies like mine?

If other organizations in your industry have used a certain budgeting and forecasting solution and found it helpful, that says a lot about whether it will also be appropriate for your needs. Check for testimonials, reviews, and even ask for references you can approach to ask specific questions.

After asking all five of these questions, you can feel secure that your choice of budgeting and forecasting software is the right fit for your needs.

Here at TGO Consulting, we want to help you find the budgeting and forecasting software that suits your unique needs the best. We offer different options to choose from depending on various factors such as company size and needs. Contact us today, and we can review the above questions with you, as well as any others you may have.   

Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "Where Did That Number Come From? A Guide To Driver Based Budgeting" »

It’s the question dreaded by just about anyone heading into a budget review meeting – Where did that number come from? With so much of forecasting consisting of, at best, educated estimates, and at worst, guesswork, sometimes that question can be just about impossible to answer. Wouldn’t it be nice if there was a clear cut, mathematical formula for each figure input into your spreadsheet, that would give you something to point to when asked that dreaded question?

That’s exactly what driver based budgeting gives you.

Driver based budgeting allows CFOs to calculate budget and forecast numbers using custom mathematical formulas created by real data from their company’s past sales numbers.

So what are drivers, and how do they work their magic? We’re glad you asked!

Drivers are basically any aspect of operations that can be measured in units. This can include units of product, customers, transactions, deliveries, installations, etc. These numbers give an overview of the activity levels that drive revenue, head counts, expenses, and capital for your business.

Now, these activity drivers have relationships with each other that can be described using a conversion rate.  For example, if your company data shows that 85% of customers who buy a printer also buy ink, then 85% is the conversion rate connecting those drivers.

Using the number of driver units and the conversion rate, the forecasted amount to enter into your budget can be easily calculated with the following formula: [Units of Printers Sold] multiplied by 85% = [Amount of Ink Sold]. 

Not only does this method of coming up with forecasting numbers give CFOs an objective measure to point to when asked where any given number came from, it also brings the finance department into much closer contact with operations, and thus helps identify which drivers are financially important, a bonus not included in other forecasting methods. This in turn allows management to make crucial operational decisions based on solid financial information.  

Driver based budgeting also gives companies new insight into any deviations from the forecast. If numbers don’t turn out as planned, it’s a simple matter of mathematics to look back and see what changed – the number of driver units, the conversion rate, or both. This knowledge can then support the decision-making process, as well.

At TGO Consulting, we offer budgeting and forecasting solutions that assist in the development of a driver based budgeting system. Our True Sky product facilitates driver based budgeting that allows your organization to capture this critical data that is so often overlooked – but which can have a material effect on your bottom line or margins. Not to mention the fact that it will help you wow the executives at your next budget review meeting!

Contact TGO Consulting today for more information on how we can help your company begin to make those vital connections between finance and operations, and make smarter, more informed business decisions based on objective measures and educated forecasts.  

Posted by & filed under Budgeting and Forecasting, Financial Planning.

Read more on "4 Techniques For Budget Forecasting" »

In business, knowledge is power. The keys to a successful enterprise rest on the ability to stay agile, to make the best decisions in a timely manner.

Being able to forecast overall income and expense, net profit or loss, overhead costs or the performance of individual functions is a crucial of strategic management. But the ability to forecast is determined by how your budget is set up. You can forecast for an entire year or use real-time data to project results. By creating different budgets, or different reports within a master budget, you can effectively forecast the performance of your business.

1. Create A Master Budget. By far the easiest technique, a master budget is an ideal way to forecast the performance of a business. Based on recent performance, this static document projects a snapshot of how you envision your business will perform over the course of the coming fiscal year.

Performance is projected based upon income and expense data from one or more previous years as well as trends and market knowledge. This forecast is then taken to managers who discuss the anticipated performance of products or services, changes in the marketplace and other factors that might cause changes in your company’s results compared with the previous year. Forecast your final budget using your recent performance numbers and agreed-upon projections.

2. Make real-time projections. You can create an additional column of information in your master budget that projects your annual performance using data as it occurs. This technique can improve the accuracy of your forecasts. For example, by using your first three months’ sales figures, you might be able to project more accurately your year-end totals – more so than a static master budget does.
As you enter data into your master budget, divide the "Total" column results by the number of months that have passed to get your average monthly income and expenses. Multiply the numbers in this column by 12 to project where you will end the year if these numbers continue at their current levels.

3. Make Overhead Projections. Knowing precise per-unit production costs is critical to forecasting profit. Overhead costs are factored in as the costs of selling these units.

If you have $1 million worth of direct expenses to make a product, and it costs $2 million to run your company, your actual cost to sell each unit will be $3 each. Keeping track of overhead will help you project your margins and profits if you adjust your production numbers.

Use your master budget to identify all overhead costs, such as rent, insurance, utilities, phones, office staff and marketing to determine the company’s overhead costs. Divide this total by the number of units you produce to determine your overhead costs per unit.

4. Create multiple scenarios. You can use your master budget to create scenarios to project how different levels of sales and different prices will affect your bottom line.

Create three scenarios: In addition to the initial annual projections you and your team make based on your recent history and anticipated market conditions, create two more budgets that show a lower amount of sales and a higher amount of sales. This will let you project the impact on your business to see where you can make adjustments. Create two more budgets that forecast your performance at price points higher and lower than your current prices. Adjust your sales numbers to reflect the impact your two prices changes will likely have. This will help you project sales, profits and margin changes. If your sales rise in response to lower prices, your profit per unit will increase as your overhead cost per unit goes down.

Software and applications can greatly improve the speed and efficiency of budget forecasting. TGO Consulting offers solutions tailored to meet your unique business needs. Contact us today and learn how you can optimize your business.

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