EP32 - Strategic Planning for the New Year

In this episode, Jason and Makenzie dive into the essentials of budgeting, forecasting, and planning for the year ahead. They break down what to focus on in preparation for the new year. The discussion explores the difference between budgeting and forecasting, how to interpret historical performance, and how to use your numbers to set purposeful goals that drive growth. This episode provides practical insight on how to plan effectively and set your company up for a strong, successful year.

Transcript

[0:12] Hey everyone welcome back to another episode of Journey to an ESOPthis is your host Mackenzie worthand I'm Jason Miller. And today we are going to be doing a similar format as we did the previous week in that Jason and I will be having a bit of a conversation here in light of us approaching the. End of the year 2025 which is crazy this year has flown by we are heading into 2026 and what may be top of mind for. Most uh business owners or key key leaders in management and companies is planning for the next year. So we're going todive into. The importance of forecasting budgeting which may be top of mind but also maybe hitting the back burner with holidays approaching and how we can um. Unpack with the importance of these piecesin light of whatever company you are but also of course in the context of ESOP companies.

[1:22] So with thatI will punt it over to Jason to choose where we will unpack first. Uh This was um my ingenious idea as we were putting things together and as you know from me and I think as our our audience Knows by now once I pick up 1 thought it just leads to another and another and another and coming up on on year end planning um what does that mean. Uh what what does that look like and there's the personal context you mentioned holiday planning so there's there's probably open houses and and uh company Christmas parties and then all all of friends and acquaintances and and others that you have to fit into your schedule holiday shopping uh shopping always comes with a budget, uhand that's just extra stress at home uh rather than or on top of what what's happening at at workuh I I think.

[2:26] Umfor me and where we where I started with with uh this this idea of year end planning what what do what do businesses typically do and what do those meetings look look like or what do those tasks or whatever you want to call them look like uh and why are they always held at at the end of the year it might be a simple question but I I may I can take a stab at it why do you think they happen at the end of the year.

[2:57] Well I think 1 1 big piece is to be able to look back at the year that you just had. A big piece ofbudgeting and forecastingI guess your starting point typically is historical information. So at the end of the year you're going to look back at the year you've just had and you want to make sure everything's or that you're prepared going into the next year. I think yes I I would agree I would agree with that um we being uh on. A CPA firm platform we often think about tax planning at at the end of the year or 2, what can we do uh from from that perspective personally or or professionallyand how how do we uh optimize we're looking to optimize our our our tax strategy which really means how do we pay Uncle Sam less uh or as little as possible given the circumstances that we haveum. What else apart from forecasting and budgeting and financials and holiday parties uh do you think would be important to to cover in this idea of of a year-end year-end planning session.

[4:21] I would say.

[4:26] Maybewithin or as part of the process. Making sure you're comparinghistorical forecasts to historical performance.

[4:41] As another aspect there and then also diving into um. Whether or not you have someone or who who you have in charge of developing those forecastsand who who should be involved in.

[4:58] And the creation of the forecastI think there's a lot there so let's first talk about that, and at the beginning it's what what what really is a forecast what is the use of a forecast um our clients hear me say all the time that the only thing we know for certain about the forecast is that it's going to be wrong um but it doesn't mean that it needs to be completely inaccurate it has to be a representative view of of what's reasonable what's achievable and then uh be designed in order to uh give goals for people to act toward uh you mentioned something really important in uh who who needs to be involved in establishing forecast so let's take it from the top and just what what is a forecast, uh Financial forecasts what's use what's a useful term to look at for that forecast for what purpose, um maybe let's unpack that a little bit first and then we'll get into how how we prepare ityeah. I would say a forecast what what is a forecast you are forecasting the future performance of your companyum.

[6:19] You could start moregeneral or Broad in terms of specifically looking at forecasting revenues you want to look at margins you don't necessarily need line by line every single operating expense account to be forecasted but maybe the big buckets, andstarting their revenue margins and and your your operating expenses sgna.

[6:46] I think5 yearsof aprojection is. I would say average of what you should be forecasting maybe 3 um depending on the purpose and use of what. What you're going to be using the forecast forum I would say 5 is a safesafehave a mediumum.

[7:13] In the context of ESOP companies the purpose would be for your evaluation. Whether that's through or for your evaluation in thethe the transaction when you were forming your ESOP or the valuation that. Is required annually once you become an ESOP company.

[7:33] I like when people uh say when we we talk about a 5-year projection I I don't even know what's going to be happening next week how am I supposed to look ahead for for 5 years um. And it's a it's a it's a valid point uh it's a valid comment when you're not used to forecasting future performance to that, level of of I say granularity that's not really granular it's kind of high level but it is casting out uh your idea of what your future is going to look like, uh and thinking about 5 years if we go back 5 years in our own lives uh, is this where you know you thought you would be is this where I thought I would be uh do do we know what's happened over the course of that whether it's personally financially anything else and could we have predicted most of that um Mo most I don't I don't think uh there's been a lot that's happened in the last 5 years for me uh that, just it's just no no way it could have happened but um. I do you you know show up to work we have family kids grow uh everyone moves through their their stages of life and looking back.

[8:53] The idea of what a forecast is allowing us to see financially is okay well now now where do we take this and then what what are the drivers of that forecasts and that's the part that I want to talk about next in, uh so 5 years 3 years 1 year 1 month 6 months 1 month isn't going to be useful uh but to to to your your end period or a quarter end period. Uh that that may be useful to provide some Direction, and numbers money is an easier metric to follow than perhaps life uh the flow of life but I would agree with that that's more unpredictable than if I come in and I do this what I have been doing for the last 20 years at work then this is the results that's that's going to produce um. Who who should be involved in who do you think should be involved in in generating the forecast for a company where should someone start if they've never done it before what do you what do you think about that.

[10:00] Uh I would say for those to who should be involved I would say. Your key leadersthose that understand the ins and out of the business the drivers of your Revenue drivers of your expenses. Anyone that's involved in. In the day-to-day but also looking at the company at a high level perspective so if if you haveI guess this would be kind of be like your your sea Suite you could kind of start there um or maybe you delegate to your.

[10:34] Key leaders like management right under your C Suite that can start developing it and then present it to the Sea Suite that's another way you could go about it. In terms of where to startI would say 100% looking at the Last 5 Years.

[10:52] Looking at your margins Over The Last 5 Years your Revenue growthyour expenses as a percentage of your Revenueum. And when I say margins gross margins and that margins so above the line below the line start with historical analyze your historical performance and use that as. Your base.

[11:19] When I think aboutputting numbers as goals to or numbers to paper as as a goal or as a Target, uh for for the future on a foundation of what we've been able to do before 1 thing I want to mention is um most people that are listening that didn't get to where they are in in in Life or in the stage of their business that's accidental success, uh and there was always some purpose behind itsometimes though it's really hard to uh when you sit down and and.

[11:54] Put attention to what what really got us here how do we Define that and we may be able to Define it in words but how does that translate to numbers. Uh and what you mentioned key drivers and you mentioned key leaders and in in my mind it's, the first place to start beyond the scope so I think the scope of the forecast would be a few years behind and then trying to look a few years into the future and where you want to be uh and how we get there is is looking at those, uh trying to quantify or identify what what drives our our business have we been able to do that before have we been able to say it's. What business development it it's our our unique approach it's our our special sauce magic potion what whatever it is right um. And then how how do we do better than we did yesterdayand what drives. So if we can Define what that is what what those those drivers are then it's what are the behaviors that the rest of our people need to havein order to make those happen every day. Right.

[13:24] So a forecast isn't just numbers then it's not just a let's put a sheet together to put a spreadsheet together uh more planning has to go more strategy has to go into that and if uh we pull that out for a moment and say. Um do do we even have a strategic plan if we don't have a forecast or if we only have a forecast for this year or if we only roll over last year's actual to a new budget with a small incremental increase that we think is going to be reasonable that we're going to hold people toum I think the bridge to that is is strategic planning. Input from all of your key leaders and kind of a big Kumbaya at the end of the year what can we do or what have we done in the past to your point that has made us successful and what can wereach for in the future that's.

[14:21] Getting us to maybe like the next level. I think another piece too is as part of your planning are you if you're if your business. Very like contract heavy where all of your revenues is dependent upon getting contracts in placeare you thinking about your 2026 contracts at the end of 2025. Or are you thinking about it when you're already in 2026the sooner that you can lock in contracts or future ear for future years the moreyou can. Develop a forecast for your future years based on on reliable data that you've kind of locking in your your future revenues which. Kind of all falls under the planning piecethat to help you get ahead.

[15:14] As a um. When I think about Finance it's always through the the lens of of of my my career as a whole and what you're mentioning is to me what I translate that to when when I hear it is visibility into future cash flows, do do I have visibility into what's coming next again through contract design if you're a contractor or if if you've got agreements in place that protect the in the Integrity of, the projections and do no again no 1 know what's going to happen but hey we're we're working together this is the way that that we we have our agreement how I get sales from youum uh from from my my customers or from my clients and then how far out can we secure that uh and and give more, credibility or Credence to the numbers that we're putting on paper in our forecastand that leads to another thought of well if visibility into future revenues increases stability then I should, see what's available to me.

[16:21] With with my clients with my customers uh to to try to do that how do I how do I secure future revenue or keep it as far out in advance as possible so that I know that I'm going to always have something coming in um or is that even possible because every business is different a contractor can can kind of do that it's going to take us this long to build uh and in that I know what I'm what I'm going to bill along the way until the building is done uh or until the project is complete with government contractors their contract Vehicles can be multi-year uh and some sometimes they're stated and other times there's, the idiq um the the indefinite uh quality or quantities of of what what's coming in on on the government contract uh but there's there's a vehicle for that some others um manufacturers uh contract manufacturers we say contract but that doesn't mean that they're contracted, out in the future it's what comes in they make, so there there might not be a way to secure visibility into a future cash flow and that's okay.

[17:33] Right uh as as long as they are thinking aboutwhat, if I don't have any options there where else can I look at my financials and and say how how do I how do I get more margin without pricing myself out and giving up work to the competition and then how do I manage the the internals the controllables what do I have control over so that we we are are doing better each year. Right. Maybe to your point it's it's less focus on the revenue maybe your revenue is kind of consistent with historical is maybe you don't have thisastronomical growth that you can can forecast and have visibility into. And so maybe to your point you're you're analyzing your expenses where can you either cut costs or if you're looking historically where have we spent a lot of money that we. Don't need to. Do the same for the next couple years maybe you've done a lot in advertising and marketing in the last few years then okay let's taper that off for the next couple years and focus on XYZ instead.

[18:41] So we talked about ownership and Leadership driving the process the importance of having a forecast giving some the a target for people to work toward and that didn't come from you know I woke up this morning and said hey I think we're going to do a forecast and we want it to look like 80% growth per year uh for for the next hundred years it's, but let's let's take this in bite-sized pieces and look at a smaller range in the future. And it's not just going to be based on your gut it's going to be based on what your front line workers are doing and their feedback to their managers and your managers to your Executives and then your executive team going this is what's happening here's what our issues are uh here's our our areas for opportunity this is what we want to do and we've got to kind of connect the dots through through that and that idea back to strategic planning is doesn't have to be 100% financially focused.

[19:41] But the conversation uh.

[19:44] Is somewhat easier to have when there's an objective metric and the objective metric is what you're setting in your forecast and really what you're, you're wrestling out with your executive team is not just what the targets are with the goals are but what's the art of the possibleand in the future and what do we need to do to get there so. That idea of what is our strategic plan and listeners you might be thinking I don't have a strategic plan. That's okaystart start with a forecast or start with a with a big idea and then either of those are going to put your your vision out into the future or it's going to crystallize your your vision from just the thought in your head to something actionable on paper that's 1 Step 1 level above where you operate every day so you're I I think most owners and and executives are are. Pretty much operating at Peak efficiency for where they are in in life and at the stage of of their company and all the things that are happening. And pulling away from that to deliberately look at vision and then. Put steps together for it might seem like an extra daunting task or not a useful task, but I I I think I tend to think that it is not just again a numeric goal but tying all these pieces together for for various reasons. Right I think it's easy for.

[21:14] For people and key executive roles to get caught up in the in the day-to-day that it'syou kind of forget to pause and look at. The big picture and. To your point a vision of what are we working towards likeof course what you've been doing day-to-day has been working but if you don't have. It's important to always kind of look forward and have something that you're continuously working towards or at least providing your key leaders a vision that they can.

[21:57] Who does we've talked about kind of the idea of year in planning everyone can follow along with um my my swervy highway of of thoughts um on on this this conversation um what what does this look like internally so let let's just fast forward a little bit, Founders and Executives have gotten together uh and we've looked atyear to date actual to budget so how good did we do from last year to this year uh and as we look ahead in into next year 3 years from now 5 years from nowthe the first step that we've taken is we're doing a a next year 3 year 5 year forecast whatever makes the most sense and then we've thought about, strategically what do we want to to change or or do step number 2uh and then underneath of that, now we we kind of have to figure out how we're how we're doing are we only going to check once a yearright.

[23:00] I would say at a minimum quarterly.

[23:04] To do a bit of a look back and compare what you forecasted to your actuals to see how how well you forecasted or maybe you. Where your shortfalls were identify the areas that you're either right on track with what you forecasted orwere way off. And then identifying why you were way off is important and kind of readjusting your forecast forthe remainder of the year.

[23:35] This seems like moreum. That that's that's the the the feeling that I get when I I think about this in in light of conversations that I've had with clients that haven't transitioned to to an ESOP yet and that's, 1 of the pra this is 1 of the Practical benefits of preparing in advance like oh okay so forecast isn't just going to help us to today or next year or maybe we should refine that or think to, to put a little bit more effort in into it uh and then the Strategic plan. The whole idea of let's be deliberate about change uh and then hold ourselves accountable to that. And the other thing that's kind of softer than thisbut it's structural as you you move into thinking about becoming an ESOP company that's imposed on an ESOP company is is having a board.

[24:32] Uh-huhand as we're talking and I'm I'm thinking I'm putting myself in the shoes of being a business leader uh running a unit and saying okay I I've got to have time for strategy because the world is Ever Changing information is widely available, uh and wi with that I you do do we have time to process it in a way that's meaningfulum. And the answer is I got to have time away and is the time away once a year uh is it is it once a quarter uh what what does that time provide for for me in in the future like what what is it giving us access to what's the uh, it's like a fasting period from the day to day.

[25:16] Uh and gorging on the the the future and the substance of of the company or the unit um. And I'd like help with that.

[25:27] But maybe that Vision that's in my head as I put it out there I I don't want to share all this details with my even my executive team at this juncture or maybe I do because I trust them and I know them but no no 1 else below that I need them to help vet vet my visionright and, no I I get this idea of a board has to be formal and you got to do minutes and uh the all all of that the idea is if you are able to structure in something like a board an Advisory Board a volunteer Board of people that you trust that's focused on the strategy of your company not only will it help you whether or not you're an ESOP company but if you do go through an ESOP transaction you have to have a board.

[26:15] To do just thisthinking about influencing the strategy of the company and the health of the company from above executive level.

[26:26] Right and I think that can bemaybe intimidating or overwhelming for companies that haven'tum.

[26:37] Haven't had a board set up before they don't even they don't know who should be on it where to start how many people how often to meet um. But I would say it'sspecially for ESOP companies like you. It not only creates this this leadership board but also holds you accountable to everything that. You're striving for and planning for those those quarterly meetings that you have with your board will helphold your vision and goals. Accountable.

[27:12] And we're not saying that they have to have some someone SI sitting over and typing out the minutes in short hands like a court reporter right that's right uh, all right you can you absolutely can sure can. Uh I I keep saying I think it's the fun part of what I do I'm very very thought driven so I always say I think um. What we're saying is really. Again in incremental Improvement and implementing process and implementing structure doesn't mean going from zero to institutional. And what you would think about as institutional or large corporate or anything that's super fancy but the more that you move, toward any type of transition in your ownership. You've already built processes and structures and rules and assemblies and and everything else in your business as it pertains to that this is just doing it for for the business.

[28:17] A little bit more intentionally I would say righta little more formalized. Without it being too formal don't don't want to give anyone the wrong idea and, talk to me about um you know the concept of board members or this kind of strategic team and what you see with um what you see with companies that aren't yet an ESOP.

[28:47] I think it's more common than not especially for for smaller.

[28:52] Private or or Middle Market companies to not already have a board which is completely fine it doesn't mean you're not you're not. Already doing what a board does you just may not be doing it. Formerly oror calling it a board of directors. I would say typicallywhen you're putting together a board or thinking about organizing a board you want.

[29:21] As a business owneryou want the people that you. No you can rely on if there's if you're out for a week who's going to keep things movingpeople that have different.

[29:36] Different perspectives than you that don't just agree with you all day that bring different ideas to the table you want a mixture of people that. Um have different strengths and ideas so maybe it's. Someone Ledger CFO that's strong and finance and then you have someone that's strong in in sales umor. Just different you want different perspectives you don't want everyone bringing the same ideas to the table you want people that are willing to to challenge others and really get to a. A collective vision.

[30:12] I really want everyone to agree with me thoughum.

[30:24] I

[30:28] Is it again as I as I think about that umit's hard sometimes to be challenged right.

[30:42] And I thinksometimes it's it's maybe like a push you didn't know you needto have different perspectives and someone challenging you. Or maybe it's someone challenging you and and your answer is is still right you just need to be able to defend it a little more. And take take some extra stepsbut I think having a devil's advocate is alwaysit doesn't hurt. Only only in the short runusually ego is the only victim right um.

[31:22] So what let's take this tothe inside is it if we haven't been doing the forward-looking, piece in great detail if we've only been rolling over budgets with you know what where are you guys think you're going to be this year and how house hiring going to go and um you know what what do we need to fix what do we need to change uh. If we were to undergo ashift in instead of just looking at our our feet, uh for our next step but we're looking ahead at the whole path for however far the curvature of the earth allows us to to see because we can't see too too far in the futureum.

[32:09] Who's responsible for that. Let's talk about roles inside an an organization and I am going to start with institutional and large corporates because it gives us some insight really into how many different hats smaller companies. Uh and the the leaders in smaller companies have to wear we talk about this all the timeum, in in this how many hats do you wear how many balls do you have to juggle or keep keep in the air um but if we we look at a large corporate Institution in the finance function because we're talking about forecast Financial forecasts and financial performance and key drivers of that performancelet's face it we're we're all in business to make a profit and we want to be more profitable so that that's where it all comes from so, on the executive team that's represented by by your CFO or your Chief Financial Officer rightum walk me through kind of the next layers or levels of what a a large corporate may have as roles that support the CFO because the CFO has a largely strategic function and ultimate accountability for the financial performance of the company but who who does he or she or they have underneath of themuh to to support that.

[33:29] That responsibilitysure, so I would say you typically have some sort of of VP or maybe it's your VP of finance and then below that you have a Director of Finance there'sthere could be so many different layers you could have VP director manager um. Kind of all all down the hierarchyyoutypically the 1 that reports directly to the CFO is is your controller, but amongst your entire team you typically would have um of course you have like your accounting function and within Finance you have your, once referred to as fpna a lot which is your financial planning and Analysis whether that's 1 person or 1 person with with a couple members underneath them as as a team, that is a a critical role that sits under under the CFO. Which would hold that responsibility offorecasting planningspecifically with. For for the numbers themselves not maybe not the. The vision behind everything I think that would kind of come from the entire executive team but getting down to the numbers would. The responsibility would would land onthe the person in the fpna role.

[34:52] I I always like the corporate Treasurer to everyone forgets about the corporate treasurer. Right it's the the uh I'm not going to use the common vernacular but they always get forgotten about um and until someone needs to borrow moneythen then they become very important or someone's looking at the line item in the forecast around certain fees uh that need to be renegotiated um. So the I these are all again we're we're putting names to roles in larger organizations that need more support and and have have kind of this pyramid effect that ultimately roll up to to the to the CFO to help. Hammer her drive that strategic visionum and the the this financial planning and Analysis function, uh is really rather fascinating to me and it always has been it's been a growing part of the field uh the finance field the Finance and Accounting field um and it it is, literally a forward-thinking based on what we know. Where and where we want to gohow are we doing and how are we going to get there.

[36:12] And it's are almost as if not as neglected as as the corporate Treasurer um and very few people think about it as a a role uh unless you're exposed to to very let's say very large large Middle Market companies uh or or or corporate uh large corporate companies having a designated role but it is a growing role um because of all the things that we mentioned if I could predict what's going to happen over the next 5 years then, that would be awesome uh the better we get at being accurate. About what we think is going to happen then we take those things that are that are controllableuh and and make an effort to do better there.

[37:01] And I think that's what fee financially that's what the fpna professional um is is designed to do. Rightand I think another a key a key part of their role is. Making sure they're communicating the results of their analysis to each to each relevant Department. Because if they're the only ones collecting this data analyzing this datathat umin order for there to be action from it or Improvement if you're. And in a department if you're falling short of where you forecasted and that's where youwant to to be then you need to be. Constantly communicating to those that drive those numbers the results so that they can either shift their mindset or or make corrective action because if you wait until the end of the year to do that it's too late. Sounds like uh.

[37:59] There's a need of more than quarterly more than annually in that really the the future looking this forecast should be more like a living forecast um, because so if someone's tending to it then it's going to stay alive uh hopefully everyone has a green thumb um but uh I I think this this particular role this particular hat because in your and listeners for your companies you I can't hire someone to just look at the future and daydream all day about numbers uh you may may not be able to do that but the function of that person is a hat that someone has to wear and if it's not being worn then it's being shelved until the end of the year. Rightso I would think of the role as more of a translator between the story between the vision the dream and the spreadsheetright.

[38:56] This sounds reallydata-heavywell.

[39:05] And and forecasting that the datathe data is importantif you canif you can defend your forecast you. You want to be able to defend it with reliable data and information.

[39:22] Which goes directly to value of your company. As you're considering a transition to an ESOP again we're an ESOP podcast primarily so we're glad that you're here and this is this is part of your your thought process um, that that data accuracy historically is important we talked about Assurance last week or previous episode on the podcast and and the importance of that but then looking into the future again the more control you have over the controllables that drive your business then the more attention that you're putting on that and the the more likely it is those areas to thrive to influence the accuracy of your forecasting coming back, so I pulled uh an fpna trans survey uh and skimmed through it I I did I did read it but I thought all right what's happening in this area of Finance in the world for the people who sit in this role and I think the thing that stood out to me most was uh 1 of the key findings on team performance.

[40:37] Was. That only 35% of the time for an fpna professional is spent on gaining insights and driving actions is the way that it's described in in the report. And we'll link this uh underneath the podcast so that that you can go and grab it for yourself it's a fascinating read um but this is in in the key findings section in the front so 35% of their time is on that. And 45% of their time is spent on data collection and validation.

[41:13] So it's very data data heavy very very data drivenum. And the the comment that's made in this is it's this finding is surprising given the technological advancements that automate most manual fpna processes.

[41:33] What do you think most teams use. Fortheir data and their analysisinternally atat privately held companies.

[41:48] At all Excelcell so if you thought Excel was going away anytime soon it's not um. That's good because I don't know that I could live without acceleration live and die by the spreadsheet um that that's, that's the way that it works right uh soif, even even with a designated professional if they're spending about a third of their time on high-value work getting insights making decisions most of it is still on data so the Integrity of your data is really important. And the easier that you can make data available and then digestible, uh you know that that bleeds over into all different areas it's is this the best way is this the only way uh is this an IT function uh is this a uh is Excel not just. Here to stay uh but is it the right thing for us moving forward I talk about AI all the time now um and you know how are people integratingthat uh into um. Into their business in whatever way and I I would think that this would be a great way to to enhance, what what's already there with co-pilot within Excel um and then then everything else but what are your thoughts on that. Yeah I would agree I mean I think.

[43:15] With the technology that's available now and with AI there'sthere's got to be ways to enhance and make. The data collection process efficient but I do think that kind of the validation aspect of it and ensuring the Integrity of the data is. You've Got To Have Somemanual intervention there. So owners um if your books are messy what McKenzie is saying like clean those up first uh so basically that's your, your first step towarduh, better accuracy and better insights and better analysis is what's happening with the data and in in your how you're accounting is set up, whether you've got different systems and different people and you've got a box of receipts we've seen boxes of receipts um H however all that that works, incrementally getting better on on that is going to help first and standardizing as much as possibleuh if it's possible to automate things within Excel to help that's that's another kind of Next Step but then, I would say beyond that it's being intentional about how much time is spent on achieving the vision.

[44:40] From annual and year-end planning to quarterly to monthlyand then thinking about. Not just a trailing 12 but then a rolling forecastthat's based on your driversright.

[45:05] Howfew companies.

[45:11] Do a cash forecastnot just aRevenue income statement forecast.

[45:23] Which can be tricky too or you kind of have to shift your if if. An accountant if your your financials are a cruel based. Kind of Translating that to to cash basis orI guess really justcreating a statement of cash flows that you can track.

[45:46] So yeah that's they're they're very they can be very different results.

[46:00] Go aheadI would say it's it's just as important.

[46:07] Maybe.

[46:13] I wouldn't say more important but they have different uses but making sure that, everything you're budgeting and and whatever Debt Service you have you're able to to meet with youryour future cash flows. Everyone's heard the phrase cash is King.

[46:32] And then most people have probably heard the the phrase that companies don't go out of business for lack of sales. They go out of business for lack of cash.

[46:46] And this gets into the idea of working capital that's a whole another segment that we'll do on another day but we uhas as you think about the value of your company.

[46:57] And I'll give you like a quick preview uh because that that's always fun working capital is a component of your value and net networking capital is a Target in any any transaction or transition how much does it cost to your company, uh per dollar of growth uh toto operate to continue to perform at your current level, so when we think about that if it costs you 12 cents for every dollar and working capital then you've got to have 12 cents in every dollar of sales that that's going to be available to you um to to grow your company, and it's the next Dollar in sales right the uh. Op more optimal that you become in your working capital than that inherently gives you more value to your business if I can decrease the cost of the next incremental dollar.

[47:52] Then that means that, the the Delta between my profit and my my sales the value of that also increases because it's cheaper for me to produce another dollar, uh and understanding that is part of this analysis, of not just do we have it do we know it how can we we track it but ultimately it gets back to what's valuable to you as as an owner and how transferableyour company is to to a new buyer and again in our context that's the ESOP and your management team do they have the the tools available to them to continue to improve the company and scale the company in light of all the changes that would happen in a transaction.

[48:38] Um and but my effort to say don't feel bad about Excel uh the. It it works very welluh and you you shouldn't feel obligated or required to move into like oh I got to get a brand new software to to to prepare for a transaction or prepare for an ESOP that should be a strategic decision with you and your team what do we need what's available what's out thereum.

[49:08] McKenzie what are your thoughts on where where AI would helpum. Or just thoughts on on AI in general in finance.

[49:21] Yeah and this is something that even I amstruggle to. I feel like you're you've been really good Jason at using Ai and I still, get caught up in my ways but I do try to use AI as much as possible to to continue learning how how it works and how it how it can improve efficiencies butI think just playing around with it and prompting it with different. Different ideas to yeah it's it's all trial and error I feel like when you're if you're if you're just thinking of like chat CPT um like. Heretic here are 4 sets of financials compile it into 1 accele and calculate. X y and zum even justtrying outdifferent prompts to see if it can. Do something that maybe you're doing manually and takes you an hour it can spit it out in 10 seconds.

[50:23] I always like to start big on prompts with with AI here's what I here's what I'm thinking. Here's what I want to accomplish and the this is how I'm doing things right nowwhat what can I do better and what's reasonable and help me, you know chart out the path and then refine that piece over piece until it gets to this or that and some of the some of the uh products.

[50:51] Of those conversations or of those prompts or from including that in into different processes have been um. Really kind of surprising for me. And I think they would be for for most people in this idea of of a prompt economy versus an app economy you can go into an app and you use it for what what it is but now with with these large language models that this idea of the better the prompt the better the outcome and it's designing that that prompt for for it and I think that that could certainly apply here because that's the bridge the bridge is I use Excel we have a controller we may or may not have a CFO, or formal CFO um and we've got a finance department or a finance and accounting department of of 6 or 4 and we're wearing AP and AR and Treasury and comp troller and controller and CFO and fpna how how do I how do I marry all these together and it's a great way to to kind of go cut through the noise and what's going to work for you in your current structure and where the next strategic hire could be. Do I need a person or do I need uh an IT upgrade if I get an IT upgrade what does that lend to the future of the company or is it just solved some problems that I have now is it is it going to help me scale. UmI think it would be really useful for for us to.

[52:18] Chart out what steps. Uh owners and leaders could take today that may not be jumping to hiring an fpna professional to step in to do this work for them or worry about the the um you know what what their conversation with Chad gbt looks like over uh over their Excel spreadsheets um. So we already know that frequency a after establishing the strategy so for do the forecast get something together it's probably a million templates that are out there if you want a template. And you don't want to go searching for it and you're listening just email us interact at journey to an ESOP uh.com and just ask for it we we're happy to send you a forecast template if it's going to help motivate you to to do it, so that you know what it looks like um so starting at the forecast and then and getting underneath of that uh what frequency not don't wait till the end of the year at least look at it quarterly from from a high pairs a high level perspective, what what else could our listeners do practically to get more out of this this view ahead.

[53:35] I would say.

[53:46] That can be used to drive your forecast butwhat data do you have now what data are you missing that could be beneficial to start tracking whether its data on your your customer base um. Data on on your collections historyum.

[54:07] Seeing what what gaps you're missing in in data that you haveand and there was something of course that came to my head that I that I lost of another piece um.

[54:26] It'll come back to you it will at 2 or 3 am like it does for all of us uh I think that's great and what we my wife would tell me you know we we learn through differentiation.

[54:40] And it's if we know or believe this and then we see something different, than in in the difference We Begin thinking about it and I think that applies here too so all the things that you just mentioned whether it's a price or volume and the mix mix of those of of your uh kind of rates and efficiency of rates and and anything else, what I would encourage people what I encourage owners and leaders to to do is is put together like a variance deckmonthly. So here here's here's what we know these are the inputs in the forecast to help us to get to where we want to get to uh and then not just kind of budget to actual but then on all of those key metrics that you just mentioned and what are they for you and what do they need to be to get to here and if they're not then that gives you that's just kind of dashboard for your leadership team to push down to to figure out if it's behaviors or if it's something outside of that, right and of course I I remembered what what I was going to say which still goes with the data but um tracking try tracking a pipeline if you're not doing that already, maybe you have maybe it's all in your head right now oh this is coming up this is we have this contract in place or I I had this conversation with this person and he wants to, work on this and in 3 months start documenting and keeping track of of a pipeline that you have um.

[56:08] Basically with the goal of alwayswith forecasting being able to defend it with data.

[56:16] Very critical for valuation but not just for valuation but for comfort um and we know something's coming and we're working on it there's a chance that it's going to happen and we we need to know what that that's going to be which leads us to uh a pipeline, is kind of like the the rolling forecast.

[56:40] Right every every couple of months uh or at least every every quarter would think about building in scenarios into your forecast uh well if this 1 hits because this is the 1 um we're we're going to need and that leads directly to Resource decisionsso variance this idea of of rolling forecasts and then what are you going to need what are your people going to need to accomplish if this scenario this scenario or this scenario Panna. Right and how do we think strategically about resource decisionsand all of This lends directly to ESOP companies with uh you know is that going to have a significant impact on our share price uh our do we need to think about our contribution and distribution strategies and what implications do these scenarios have on our repurchase obligation in the future so the fpna function within an ESOP company is is thinking about repurchase obligation and it's thinking about the levers and the mechanisms available and in the plan and in the structure of the ESOP.

[57:49] To all of these other items that we've been talking about so fortunately or unfortunately listeners once you become an Esau. Uh the fpna value doesn't go away uh it it probably comes even more critical but it falls underneath this forward-looking Forward Thinking uh uh aspect of Finance and Accounting.

[58:13] RightI would agree it's it's even it's even more important as an ESOP company um you can. I guess kind of have a lot ofa lot of things at risk if you're not forecasting properly or if you're forecasting too aggressively um. And the implications of that withwith employees accounts and. To your point we're purchase obligation which is something that I think is often maybe overlooked or not fully understoodum by ESOP companies.

[58:49] There's probably a business opportunity for someone there, uh in in helping to to design more insight at a company level for repurchase obligation I'm gonna Mark that down as a note uh or for us to think about or explore or ask they're a great providers that are out there currently and you know for for tpas and others, and the ESOP Community has been thinking about repurchase obligation and visibility into that for a long time um so listeners if you'd be interested in in hearing more about that again let us know uh we we're here for you um to to give you useful information and hopefully you found today's conversation both useful and at least mildly entertainingum. Uh I would encourage you again to reach out through uh the journey to an esop.com to us with topics that you want us to cover we've got some great things planned for 20126 more more on that uh in in the coming weeks throughout the holidays uh just know that we've got a plan for you and a plan for us uh in in the new yearum. With that McKenzie any any last words for today on forecasting year-end planning and and fpna.

[1:00:12] I would just say don't don't push it off to next year get ahead of it while you can um you still havewhatever we have 6 weeks left of the year it's not too late to get started so. Thanks for listening in and uh we hope youtune in with us next week.