The Mind 🧠 of a CFO

Part 2 in our series on predicting cash flow.

Forecasting doesn't need to be complicated to be useful.

When I joined a $15M landscaping company as its CFO, we were two years behind on financials. There was no forecast, no forward-looking plan, so we started simple—with scenario forecasting.

Why? Because the business was evolving fast. Demand shifted with the seasons, opportunities popped up unexpectedly, and the books were not up-to-date. Instead of chasing a perfect forecast, we built flexible models to help guide singular decisions.

Forecasting in the Real World

Here's how we used scenario forecasting to shape key moves:

An invasive species hits town. The Emerald Ash Borer was killing trees. I modeled a new service line to treat infected trees. On paper, it looked like a moneymaker. But the owner passed. It didn't align with the company's values, which mattered more than the numbers.

The aging fleet required commercial driver's licenses (CDLs). I analyzed replacing them with non-CDL trucks. Financially, it was a toss-up. But there were hidden costs: employees left once they got their CDLs, and replacement parts for the old trucks had to be shipped from France, causing massive delays in repair time. That analysis helped leadership confidently move forward to non-CDL trucks.

Both examples show that forecasting isn't just about numbers. It's a decision-making tool that requires factoring in intangibles.

Most Companies Start Simple

I surveyed 39 CFOs across industries and company sizes to see how other finance leaders handle forecasting. Here's what I found interesting:

• 81% used Excel or Google Sheets

• 38% used historical growth to forecast. For example, last year's sales plus 10% growth.

• 19% used moving averages. This is our primary method at a² for our fractional CFO clients.

• 38% used a hybrid approach of historical growth and moving averages

• Most updated their forecasts quarterly. Our team does it monthly.

How to Start Forecasting in Your Business

If you're not forecasting yet, start here:

1. Export your income statement by month to Excel.

2. Use 3- to 6-month averages to project near-term revenue and expenses.

3. Review margins and net income percentages to ensure they align with your industry (ask ChatGPT if you are unsure of your targets).

4. Dig in if the percentages are off. How can you correct them?

   1. Cutting expenses

   2. Increasing revenue

   3. Getting more capital

   4. Collecting AR faster

5. Add actuals as each month closes to compare with the forecast. Where were you off and why?

6. Keep it simple. Focus on revenue, cost of sales, operating expenses, and cash.

Bottom Line

Your forecast should help you make better decisions—not add complexity. Start small. Keep it flexible. And let your forecast evolve as your business grows.

Stay tuned—next time, we'll cover how to fill in the forecast with actuals.

Thanks for reading, Luke Templin!

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