Beyond Budgeting: How to Use Financial Planning to Actually Lead Your Business

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Gershon Morgulis: Welcome, everyone.

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Gershon Morgulis: Should we get started?

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Gershon Morgulis: Yep, alright.

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Gershon Morgulis: Welcome, everyone. Thank you all for joining us today. I am Garrison Margolis, I am the founder of Imperial Advisory, and thank you for joining us for this first session of our business

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Gershon Morgulis: Health Webinar Series.

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Gershon Morgulis: Shout out to Dean, I think this was his idea.

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Gershon Morgulis: So, thank you. Anyway, so, this idea of this series is we want people Our clients, our friends.

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Gershon Morgulis: And everyone, really, to understand the financial and operational implications

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Gershon Morgulis: of running a business. We want people to be able to understand what’s going on and make good…

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Gershon Morgulis: informed decisions. And ultimately, improve performance, plan for your business, and make smart decisions, both around financials as well as really everything else.

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Gershon Morgulis: So, each session is going to focus on a key part of running your business.

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Gershon Morgulis: Today’s is gonna be about budgeting and forecasting, and we’ll talk about that in a minute.

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Gershon Morgulis: And some of the others will obviously cover financial topics, like budgeting today, cash flow, etc, but we’re gonna also cover things like marketing.

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Gershon Morgulis: Right? How should you look at marketing? How should you look at capital? Right? Borrowing. There’s a lot of good stuff coming, so stay tuned. And thank you, Tony, for helping put all this together and produce this.

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Gershon Morgulis: Alright, so today’s topic is budgeting. It’s how to use budgeting and forecasting as a tool to really help you grow your business.

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Gershon Morgulis: And we have two amazing speakers.

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Gershon Morgulis: well, first, it’s to grow your business, not just to make a budget and leave it on a shelf, which is what some people do, but the goal really is to make that a living, breathing part of your business, of your business growth. So, we have two amazing speakers today, both from our team.

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Gershon Morgulis: Sometimes we’ll have outside guests, sometimes we’ll have people from our team. Today’s guests, or speakers, are Tom and Stephanie. Tom is one of our amazing CFOs. Fun fact, he was actually Dean’s CFO at one of the companies Dean worked at a long time ago, and we are lucky enough

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Gershon Morgulis: to have both of them here. Anyway, so we have Tom, who is the amazing CFO. He has decades of experience working with both public and private companies.

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Gershon Morgulis: And… he’s been a board member for large companies, for… he’s worked with startups, and…

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Gershon Morgulis: He is one of our speakers today. Along with Tom, we have Stephanie. Stephanie is our FP&A specialist. She’s got over

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Gershon Morgulis: around 20 years of experience working in accounting and finance. She worked in, consumer goods, is how I would describe it.

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Gershon Morgulis: Food specifically, and

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Gershon Morgulis: at some point, her company got bought by Nestle, and we were lucky enough to poach her from Nestle, so if you like Nestle’s food, you can thank Stephanie. Alright, so Tom and Stephanie are going to educate us today on…

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Gershon Morgulis: A lot of what they learned in the past from working at big, sophisticated companies, and

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Gershon Morgulis: help us understand how those things are applied to smaller companies. And Tom and Stephanie are actually working together on at least one client right now, bringing this large company rigor to

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Gershon Morgulis: to smaller companies, to our clients. One thing before I tell Tom and Stephanie to take it away, I like to just welcome the people from our team. So.

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Gershon Morgulis: Tom and Stephanie, you’re speaking. Welcome to you both. Welcome, Dean. Welcome, Tony. Thank you for putting this on. Welcome, Adrian.

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Gershon Morgulis: Elizabeth, Marty, That’s who I see on my screen. There’s another screen somewhere.

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Gershon Morgulis: And shout out to Buddy Blatner, who is one of our former CFOs, and we welcome you back. Thank you for joining. And thank you to all of our guests.

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Gershon Morgulis: And without further ado, Tom and Stephanie, please take it away.

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Tom Amato: Okay, in deference to my age, I’ll start, and Stephanie, who is a young lady, can follow me up. But, the topic of budgeting versus forecast.

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Tom Amato: I’d like to start with some perspective. The objective of all of our activities is to make better business decisions and build successful organizations.

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Tom Amato: We also look forward to having some fun along the way, so I’m gonna start with a couple,

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Tom Amato: perspective, suggestions. One is, I have a couple,

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Tom Amato: leaders that I look to that may not be characterized as business leaders, but their wisdom is useful. One is the senior senator from Louisiana by the name of Kennedy, who’s a good old boy, but an Oxford grad.

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Tom Amato: And he has a saying, thinking about Congress as being do-nothing, that when you think about it, doing nothing is difficult.

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Tom Amato: Because you never know when you’re done.

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Tom Amato: And one of the things we want to do is make difficult things easier. And that leads me to another philosopher, a baseball player for the Yankees for years by the name of Yogi Berra, and Yogi would say.

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Tom Amato: Nothing difficult is ever easy, and there’s some embedded wisdom in that saying as well. So let’s put doing something difficult, which is running a business. How do we make it easier? Well, one way we make it easier is to translate

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Tom Amato: The operating metrics or drivers of our business into financial terms that the rest of the world use

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Tom Amato: to measure the effectiveness of a business. Essentially, it’s profitability and cash flow.

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Tom Amato: And so…

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Tom Amato: What I want to tee up for Stephanie, who will come shortly, and I’ll try not to take up too much time.

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Tom Amato: Is to embed this idea that budgeting, forecasting, modeling.

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Tom Amato: Is our effort to translate the drivers of a business.

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Tom Amato: The key metrics that satisfy customers and create efficiency in the production of product or services into something that is measurable.

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Tom Amato: And something that we build a model around that allows us to simulate

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Tom Amato: That business in such a way that we can improve the effectiveness of decision making.

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Tom Amato: And, importantly, on a day-to-day basis, measure the effectiveness of our organization to deliver a result.

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Tom Amato: So, when we think of a budget, it can be thought of as kind of a, a routine…

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Tom Amato: static.

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Tom Amato: activity that’s done once a year. We like to think of it as a plan. A plan that forces the organization to identify the linkage

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Tom Amato: Between active… activities and aspects of the business that can be measured in financial terms.

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Tom Amato: All the way down to something as very important as cash flow. What creates cash flow? A good budget slash plan identifies the drivers

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Tom Amato: of the ultimate success of a business, its profitability and its cash flow, in such a way that you can monitor, measure, and anticipate what’s going on with your business. It’s really not only a planning tool.

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Tom Amato: But it’s also a control mechanism that helps management make not only good decisions, but execute.

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Tom Amato: And typically, To be effective, The business plan

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Tom Amato: of an organization must be aligned with its strategy, its high-level objectives, and the incentives associated with success should also be measurable and part of the process.

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Tom Amato: So, it’s really dynamic, It’s forward-looking.

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Tom Amato: Even though a budget sounds like it’s backward-oriented, and it’s updated regularly as conditions change, we improve our effectiveness in management by anticipating the implications of change.

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Tom Amato: What’s likely to happen? What do we want to manage not to happen?

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Tom Amato: Now, those are kind of general comments about the process, but again, it’s oriented towards decision making.

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Tom Amato: And controlling the business to achieve an objective.

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Tom Amato: Now, how do we go about that?

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Tom Amato: In order to understand that more fully, I’m going to turn it over to Stephanie, and she’s got some talking documents and words to share with you.

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Stephanie Giambalvo: Thank you, Tom. Thank you for the introduction. So, Tony, if you don’t mind just pulling up our, slide, just for the audience, yep.

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Stephanie Giambalvo: Now, we just wanted to outline, kind of in very simple terms, and kind of in a simple visual of the difference between budgeting and forecasting activities.

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Stephanie Giambalvo: So, as Tom had already started mentioning, and even in my experience in the past, budgeting is that annual process that occurs, you know, a few months out from the end of your year. The view is around 12 months.

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Stephanie Giambalvo: And, it, we set targets and control spends.

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Stephanie Giambalvo: As well as, aligning with the overreaching goals and objectives from, the organization. You know, I saw this firsthand.

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Stephanie Giambalvo: you know, at Nestle, specifically, where you would have a growth target based on a 3-year or a 5-year plan, and then you would kind of start building your initial annual plan, or budgets around some of those, general targets.

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Stephanie Giambalvo: And I’d also say, as a part of the budgeting process, you’re working with several cross-functional partners. So, for an example, any inflation assumptions, some of the baselines you would also be considering is headcount.

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Stephanie Giambalvo: From your cost perspective. And then from your top line, you also want to align with your sales and marketing teams, you know, what is going to be driving those top lines, or is your sales and marketing teams aligned with that strategy for the year that

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Stephanie Giambalvo: target for growth, for sales, as an example. And who’s going to be accountable for meeting those, expectations?

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Stephanie Giambalvo: What I kind of view, that’s kind of our… an annual budgeting process. It’s kind of static, it’s based on a period of time, etc. Now, forecasting is a much more dynamic kind of process as a part of that P&A.

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Stephanie Giambalvo: And what this really does, it’s really helped make informed decisions. It has substantial impact on cash flow. You know, if for some reason your top line is changing, as an example, and your product mix is changing, not only do you want to understand all the impacts all the way down your business, including your material cost, if it’s, for example, a manufacturing company.

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Stephanie Giambalvo: You also want to understand how all that will impact your cash.

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Stephanie Giambalvo: And for me, I find forecasting to be a highly efficient exercise for any business, and, you know, for maybe a smaller, organization, it doesn’t have to be complex.

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Stephanie Giambalvo: You can kind of group your sales, for an example, by customer or by product, and you can predict certain outcomes based on the customer mixed changes.

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Stephanie Giambalvo: That just kind of helps us understand where we really will land for the year, and to help make decisions, and business decisions.

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Stephanie Giambalvo: So, thank you, Tony, for, sharing this.

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Stephanie Giambalvo: So overall, those are our main differences between the budgeting and kind of forecasting processes.

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Stephanie Giambalvo: Now, when it comes to budgeting itself, you know, I’ve experienced several budgeting and budgeting cycles, you know, kind of taking those baseline assumptions of what we already know. If we know we sold, you know, our average price, sales price per box, as an example, is $10 a box.

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Stephanie Giambalvo: Then, you know, we’re assuming maybe some type of assumption in the following year, and we would also make changes to maybe some volume assumptions, or to some pricing impacts.

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Stephanie Giambalvo: So, during the budget, you’re making some very high-level assumptions. Maybe based on, you know, you want to grow your business 10%.

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Stephanie Giambalvo: What does that mean all the way through your marketing and sales, trends? Does that mean you have to invest more? Does that mean that, the return’s gonna come right away? You know, does it… what is your, kind of, your lead time on generating new business? So all of these things

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Stephanie Giambalvo: kind of come into, into play with the budgeting. And a lot of times, also for your… there’ll be an annual capex plan, for whatever that may be.

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Stephanie Giambalvo: And you’ll be tracking and managing that as well.

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Stephanie Giambalvo: And then in addition, at least in my experience as well, the budget is based off of, compensation plans, as an example, so…

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Stephanie Giambalvo: Your budget will always kind of be that baseline for compensation and for bonus structure and payouts, but as the, as the year kind of materializes, and as things go through, then you will make changes in that forecast.

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Stephanie Giambalvo: So.

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Gershon Morgulis: Can I jump in for a second?

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Stephanie Giambalvo: Yep.

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Gershon Morgulis: I just want to highlight something that Stephanie said, which maybe you’ll go into it more later, but when you talked before about marketing.

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Gershon Morgulis: Marketing, in some companies, is looked at as, well, I should be spending X percent of revenue on marketing, especially with smaller companies.

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Stephanie Giambalvo: But…

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Gershon Morgulis: when you’re using marketing as a driver in a budget, there’s really potentially a different way to look at it. It’s how much… where am I looking to end up, and how is marketing helping me get there, rather than marketing just being…

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Gershon Morgulis: a line item, it’s really a driver.

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Gershon Morgulis: And then…

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Gershon Morgulis: The calculus around that might be less related to a percentage of revenue for this year. It’s more about what you can afford and where you want to end up.

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Gershon Morgulis: Just an observation.

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Tom Amato: Well, all of that… leads to… Building a model that,

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Tom Amato: constructs the interaction between actions and results. And so, like, what you’re just saying, Gershon, is

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Tom Amato: when you plan, you decide what resources do I need to achieve an objective. And I need to plan those resources in such a way as I can control the spending, but also measure the intermediate points that lead to the outcome that we’re looking for.

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Tom Amato: When we talk about budgeting.

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Tom Amato: We really want to focus on planning. How do I identify the linkage between activities that use resources, financial resources, and generate results?

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Tom Amato: And what is the specific linkage between those activities?

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Gershon Morgulis: Yeah, and not just financial resources, there’s also, like.

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Tom Amato: booming.

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Gershon Morgulis: One thing I find often with smaller businesses is that there’s mental resources, and the biggest bottleneck is the business owner.

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Gershon Morgulis: And depending on what they want to focus on, like, there’s only however many hours a week that they can be productive.

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Gershon Morgulis: And picking which of those, you know, where you want to… it might not show up in the budget, but that’s really part of the planning process of where do I want to put those resources.

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Tom Amato: Human resources.

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Gershon Morgulis: Right.

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Gershon Morgulis: But that’s… that’s one human resource which is often a scarce commodity. Like, the owner’s brain share, mind share.

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Gershon Morgulis: you know, you can’t just, like, necess… you can’t always hire another person. Sometimes you could.

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Tom Amato: But…

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Dean Zambelli: Another benefit… Sorry, Tom, go ahead.

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Tom Amato: What Stephanie and I have experienced in a small company that we’re serving.

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Tom Amato: Our analytics have helped them prioritize the areas that they want to develop. They want to achieve revenue growth and profitability growth.

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Tom Amato: But by looking at the model of the business and its interactions, it’s highlighted the importance of an investment in a business tool of a particular type that will enhance their ability to make better decisions in sales and production.

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Dean Zambelli: Another benefit to a solid, you know, budget and forecasting process is the…

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Dean Zambelli: not only the initiatives that Tom is talking about of what you want to make sure you’re measuring against as you go through the year, but it also helps drive accountability and ownership throughout your organization. And, you know, as you’re detailing out the assumptions and initiatives that you’re looking to drive throughout the year.

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Dean Zambelli: You want to make sure that there is alignment internally, and there’s an owner for each one of those initiatives, so that the workload is spread among the leadership team and throughout the organization.

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Dean Zambelli: And as you’re going through the year and measuring, you’re following through on, you know, what’s successful, what’s not, and where do you need to change along the way to make sure that you could get either back on track or you could double down where you’re being successful.

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Dean Zambelli: But it really does, create that alignment of accountability and ownership, with a well-thought-out budgeting process.

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Tom Amato: Steph, did you have any more in that section you want to go over?

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Stephanie Giambalvo: Yeah, I think maybe we talked a little bit about how forecasting, kind of now, outside of the budgeting process, how we do… how now we’re kind of in that forecasting, and

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Stephanie Giambalvo: Next steps.

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Stephanie Giambalvo: So, as Tom had mentioned, we have been working together with one of our clients, and we’re helping them not only take all of those metrics and apply it to these financial, you know, how we use them financially, we’re also looking for opportunities for cost savings initiatives. We’re also identifying, any risks to the original budget.

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Stephanie Giambalvo: And so what we’re working very closely with, and what Tom is doing, is working very closely with their team, and identifying how we will achieve these, you know, kind of targets and all of these metrics.

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Stephanie Giambalvo: And then kind of what, in my experience in the past, and I’ve always kind of used forecasting as an opportunity to, you know, maybe

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Stephanie Giambalvo: simplify, the process where you want to really have a good understanding of where you’re going, but not really overcomplicate. So, you know, if your business is, you know, based on, you know, a per box or a per pallet basis, you know, you can make some general assumptions, and then you can kind of

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Stephanie Giambalvo: forecast out down your… all the way down your business, your P&L, your COGS costs.

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Stephanie Giambalvo: And I, like, when I’m building, any kind of, like, forecasting and scenarios, I like to take, you know, the main drivers into account when I’m trying to understand where we’re going, and

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Stephanie Giambalvo: the overall general purpose as well, I would say, and most important purpose of forecasting is to be able to provide leadership with really where we will be, and where we believe we will end. Obviously, our budget is built on, as Tom, you know, was mentioned, you know, our assumptions based on a period of time, based on what we knew, and then throughout the year, that changes, whether for

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Stephanie Giambalvo: positive or negative events happen that are out of everyone’s control, so it’s best when even you’re looking at a forecast, a rolling forecast, look at seasonality from the prior year, as well as something that Tom and I have been exploring as well, you know, understanding really those drivers, the customer drivers, the cost drivers.

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Stephanie Giambalvo: So all of that becomes very important with figuring out where we will land for the end of the year.

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Tom Amato: Yeah. Oh, but the next topic that we decided we wanted to talk about was accountability. And from years of experience, I’ve observed organizations that have very high level of accountability.

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Tom Amato: The number must be achieved, no matter what.

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Tom Amato: At some point, if that can get overboard, and you end up with people doing things that are inappropriate in order to achieve a number.

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Tom Amato: the sweet spot is something in between laissez-faire, let’s say, and that level of accountability that drives the organization to do inappropriate things. So, when we make a plan, and I’m going to keep referring to a budget as a plan.

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Tom Amato: It’s very important for the organization to feel accountable for each one of their pieces of that plan to come together. The CEO and the CFO kind of have overall orchestration of that plan leading to a result.

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Tom Amato: But the plan is dynamic.

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Tom Amato: And if it becomes too rigid.

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Tom Amato: It either breaks apart and loses meaning.

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Tom Amato: Or it leads an organization to do things that may be inappropriate. So, leadership

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Tom Amato: the CFO and the CEO really need to use the plan and accountability to the plan in a healthy way to manage the business. Now, in order to do that.

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Tom Amato: The linkage between individual responsibilities, functional responsibilities, and the organization have to be

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Tom Amato: Accurately aligned with the result that the organization is looking to.

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Tom Amato: We do forecasting to be able to identify when we have deviations that we have to adjust to, and how the organization adjusts to those deviations

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Tom Amato: measures the effectiveness of that organization. I like sports analogy. In every football team, whether you’re the Giants, or let’s say the Eagles, compared to a local sports team, you go into a game with a game plan.

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Tom Amato: You play the first half, and you learn the things that work or don’t work in that game plan. You adjust at halftime. Your objective still is to win the game. But often, the adjustments that you make

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Tom Amato: are the reasons why the outcome is what you get. So.

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Tom Amato: Budgeting versus planning, we do the budget in order to be rigorous in understanding linkage between operations and the financial outcome.

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Tom Amato: But we look at the performance on a period-by-period basis to make those adjustments that are necessary to achieve the best possible outcome, short-term and long-term, for the business.

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Tom Amato: I, I, I, I think that… kind of…

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Tom Amato: Summarizes our perspective on the process.

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Tom Amato: Having worked in large organizations and small organizations, the dynamic of leadership

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Tom Amato: Where the leader uses financial planning to motivate

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Tom Amato: And make better decisions, and execute.

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Tom Amato: I think it’s the same, whether you’re talking about a billion-dollar company, or a

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Tom Amato: $5 million company. The same thing is going on.

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Tom Amato: The thing that I think we bring to the party is a business leader or an owner will have in their minds

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Tom Amato: a plan of what they want to do with the business. And they will have an understanding of relationships between the market

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Tom Amato: The operations and finance, outcomes.

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Tom Amato: We want to bring along a process that helps bring those thoughts that are in the owner’s minds into a format

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Tom Amato: That the rest of the organization can internalize, and also can manipulate

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Tom Amato: to improve outcomes on paper, rather than having to do it only in the real world. Mistakes on paper have minimal

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Tom Amato: impact on the organization. Mistakes, bad decisions in the real world can be catastrophic. We want to de-risk

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Tom Amato: Those decisions by analyzing and planning instead of just, executing.

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Tom Amato: Okay.

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Tom Amato: end of prepared remarks, in a way. I would welcome the opportunity

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Tom Amato: To talk, and Stephanie can talk a little bit more about best practices in this, in this, process that we’ve learned in prior experiences, but we can apply with the clients that we’ve been interviews to at Imperial.

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Stephanie Giambalvo: So, for budgeting, best practices really is… some of the most important things are having that strategic alignment with your top line, with your… all of your departments being in sync, and making sure that the goal is the same.

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Stephanie Giambalvo: Making sure that there is resources, you know, available.

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Stephanie Giambalvo: And also performance evaluation, where every month we would… we’ll be comparing, as an example, our actuals versus our original budget, and although we know the budget is of a period of time and is static, you know, we, still evaluate against it to see where we are going.

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Stephanie Giambalvo: And I would say best modern practices for forecasting is, making better operational decisions. So, do we have, as, you know, we’re mentioning, is there a problem in the future that we need to course correct? Do we understand

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Stephanie Giambalvo: when that risk is occurring, how do we mitigate this risk going forward? And also, very importantly, and, you know, stay tuned for the next webinar for cash flow visibility.

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Stephanie Giambalvo: As well as also another critical component of the forecasting, kind of.

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Stephanie Giambalvo: best practices. What I’ve always found valuable, and even large companies and smaller companies, you know, shorten budget cycles, so whether it be, like, the 3-year to 5-year planning cycle, the annual planning cycle.

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Stephanie Giambalvo: And, you know, invest more time in…

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Stephanie Giambalvo: your immediate future, your 12-month to 18-month rolling forecast. That’s where your cash is going to be consumed. Those are the areas that you really want to focus on.

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Stephanie Giambalvo: And, make sure that you always understand and you’re aligned with your leadership. And also, in regards to forecasting, simplicity is better sometimes at understanding your business.

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Stephanie Giambalvo: having the level of detail from your ERP, you know, I found very useful, at all different company sizes, and, you know, that really helps drive those decisions effectively.

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Stephanie Giambalvo: So…

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Tom Amato: Well, and we… we would come back to…

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Tom Amato: from a conceptual standpoint, we want this process to be meaningful, as opposed to just a chore.

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Tom Amato: There are situations where budgeting

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Tom Amato: I think of government activities, where a budget is set up, and at the end of the year, the objective is to spend the money.

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Tom Amato: As opposed to the objective, which is to make a better service opportunity for who you’re trying to provide services for.

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Tom Amato: And so, one of the mindsets that forecasting and thinking about budgeting as a planning process

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Tom Amato: is to align the activities to higher-level goals that, sustain a business, rather than just short-term goals. I gotta meet this number this month.

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Tom Amato: And the number is more important than the underlying performance or metric that we’re trying to manage. So we would encourage anyone we work with

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Tom Amato: to think about the business and its well-being, rather than just spending levels, or… but… but there’s disciplines that come along with spending levels and performance achievement.

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Tom Amato: They just need to be balanced, for the long-term well-being of the organization, and not short-term goals of making a number and losing sight of the importance of activities to the business.

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Tom Amato: We had a bunch of, like, one-liners, you know? Like, budgets create discipline.

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Tom Amato: Forecasts create agility. And by that, we mean the discipline of anticipating what it’s actually going to cost in resources to achieve something.

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Tom Amato: On the one hand, and the reality that as you go through execution.

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Tom Amato: Everything’s not going to line up. And how much can we learn from the process of setting a budget or a plan to learn how best to react to circumstances that change in the execution of that plan?

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Tom Amato: So, budgets create discipline, forecasts create agility.

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Tom Amato: Stephanie, why don’t you do the one… what does FP&A create in terms.

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Gershon Morgulis: Can I jump in for a second?

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Gershon Morgulis: We give a… I want to give an example of something that Tom was saying. It’s an extreme, but perhaps famous example. There used to be a company called Enron that many of the people on this call probably heard of.

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Gershon Morgulis: Some people… Maybe not. But they…

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Gershon Morgulis: had metrics that they wanted to hit, and they wanted to show profit, and there were certain things they wanted to show, and what they did was they found ways, and I’m not the biggest or best accountant, I’m sure someone can get this more exact, but they found ways that they could show profit when they weren’t really making more money. They found a way that they could count

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Gershon Morgulis: profit that may or may not have happened 20 years out, and show it today as profit. And so they were managing toward the metric, but it wasn’t really

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Gershon Morgulis: changing what was happening in the business. They just found a way that they could… and they did a lot of things, and some of them were criminal, and some of them were…

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Gershon Morgulis: Some… many of them were probably criminal, and some of them, you know, at some point they got… they had the ability to legally…

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Tom Amato: Push the envelope. Push the envelope.

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Gershon Morgulis: Yeah, I remember watching, like, a documentary or something, and they found a way that they could do what they called, at the time mark-to-market counting of revenue. And they’re like, well, this project might produce profit in the future, or it probably will, and, you know, all those things are always dependent on discretion. Like, who knows if it will, and who decides if it probably, and how probably needs

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Gershon Morgulis: how probably it needs to be, but the point was, they were uncovered when someone went and looked and said, they have a… showing all this profit, but there’s no cash, and eventually somebody realized that this was all a different type of profit than what everybody else understood, but it still sort of fit into the word profit, which is why they were able to use it.

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Gershon Morgulis: And ultimately, the realization that they were

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Gershon Morgulis: Losing a massive amount of money, according to the ways that simple people understand making and losing money.

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Gershon Morgulis: You know, that…

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Gershon Morgulis: brought about their downfall, and it was prob… I think, an example of what Tom was saying, that managing to a number, rather than managing to improving the business.

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Tom Amato: Well, in the case of small businesses, Where there’s private ownership.

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Tom Amato: It ought to be easier to…

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Tom Amato: align with cash flow as a real measure of performance from a financial standpoint. But businesses go through different stages. You could go through a growth stage where you have a profitable business and you have to make significant investments to reach the next level of performance.

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Tom Amato: And budgeting and forecasting help navigate those changes, those pivot points in a business’s life.

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Tom Amato: And, the discipline of doing the hard work of finding the alignment between the operating activities and financial results

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Tom Amato: And then teaching an organization to do that work and hold themselves accountable in a constructive way.

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Tom Amato: is the essence of having a sustainable business, whether it’s $10 million in revenue or $10 billion in revenue, it’s the same thing.

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Tom Amato: The people side of leadership.

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Tom Amato: is often what gets in the way of actually executing. And,

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Tom Amato: In our experience, Stephanie and my experience working with the client that we’ve talked about.

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Tom Amato: We started with a financial planning project to build the model that allowed forecasting and budgeting to be done on a granular level so that we really could align activities to financial results.

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Tom Amato: In building that model.

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Tom Amato: In our intellectual curiosity about the business, and we kept talking about how we really wanted to help them run the business effectively, we earned their trust.

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Tom Amato: So, another aspect of the budgeting and forecasting activity.

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Tom Amato: Is the organization has…

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Tom Amato: to trust the process to lead to better results. And that’s where leadership of a CFO

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Tom Amato: and a CEO really come into being. If all that is happening is we’re creating a bludgeon to hold individuals accountable, and we’re going to beat them up when they don’t make their number.

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Tom Amato: We’re going to stifle their creativity, and we’re going to end up in an environment where they’re not going to be as effective.

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Tom Amato: But if we genuinely recognize we all have to be involved in this process, and we want to encourage dialogue, risk-taking.

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Tom Amato: thinking, planning, we can encourage the organization to be more effective and achieve its business goals. So.

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Tom Amato: The budget and forecasting process is a way for the CEO and the CFO to engage the organization in a more healthy.

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Tom Amato: Process for achieving results.

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Tom Amato: But they have to earn the trust

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Tom Amato: of the people involved in that process. That, yes, they’re going to be accountable, but we also recognize stuff happens, and how we work together to make

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Tom Amato: You know, lemonade out of the lemons is really an important aspect of this process.

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Tom Amato: I hope that that makes sense. All I can say is, given my age and experience, I’ve seen it done well, and I’ve seen it done poorly. It all comes down to leadership.

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Tom Amato: And how you approach this process of budgeting, converting it into a business tool that helps an organization achieve its objectives and engage the entire organization in the process. You’ve got to have trust.

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Tom Amato: in that process. And sometimes, it starts out with the CFO, or the financial, or the CEO,

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Tom Amato: Coaching the organization into this process.

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Tom Amato: Now, I think we’ve used up enough of our prepared remarks. Stephanie and I are willing to take your hard questions, and she’ll take the hard ones, I’ll take the easy ones.

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Stephanie Giambalvo: Thanks, Tom.

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Tom Amato: Any questions?

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Tom Amato: And, and, and Dean, You know too much to ask me questions about how we execute.

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Dean Zambelli: Woman.

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Adrian Dewey: I’m curious as to which toolset you’re actually using to produce this, and any challenges you’re facing from accessing data with different clients, with different IT stacks, and so on. Have you standardized the tools that Imperial actually use?

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Tom Amato: I’m gonna… Stephanie’s more familiar. I’m gonna say that there are a variety of tools that can be used

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Tom Amato: And there are a variety… there are a lot of different inputs. Oftentimes, we find organizations that are using QuickBooks, and some of what happens in the planning process is to make sure that the chart of accounts and the information flow

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Tom Amato: lend itself to tracking actual performance against debits and credits, and that’s part of the process.

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Tom Amato: But In Stephanie, we have a person that has done this

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Tom Amato: in sophisticated organizations, and so, to a certain extent, we’re building the tools as we go. But the tool that we’ve built for our client.

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Tom Amato: I think is very applicable to other organizations that we serve. What do you… what do you think, Steph?

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Stephanie Giambalvo: Yes, and also, many of our clients, at least with my experience so far, have also been using QuickBooks, which is generally

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Stephanie Giambalvo: You can manipulate the data, and you can create various, analysis and views of this data. So we’ve been fortunate that we’ve had at least that level of detail, which does help as well with the whole modeling process.

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Adrian Dewey: Are you pulling data from the CRM, payroll.

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Adrian Dewey: Billing system and so on, or is it typically just the accounting package?

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Stephanie Giambalvo: It’s typically just the GL, the balance sheet, the P&L, you know, kind of structure, and then anything with payroll, as an example, we would pull from their system. It would just be, you know, hours by category, and then the dollars, so it’s a separate process still, yes. But there are multiple ERPs that do have the ability to import from various sources.

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Stephanie Giambalvo: and have the ability to create, you know, various structures within the ERP.

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Tom Amato: We also analyze, let’s say, the sales, activities. Try to, differentiate different products

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Tom Amato: what… as having unique drivers, or having cost structures that might be different, and selling points. So, we’ll look at the detail of sales and production, and then try to

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Tom Amato: segment those, or categorize the drivers into things that are more easily understood and managed, rather than trying to forecast 150 different SKUs.

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Tom Amato: Try to come up with a dozen or more that can be linked.

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Tom Amato: With similarities.

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Tom Amato: Sounds like we made a good presentation, Steph, they don’t have any questions.

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Stephanie Giambalvo: That’s excellent.

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Tom Amato: Well, I can’t emphasize enough the human aspect of budgeting and forecasting. It’s a…

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Tom Amato: Very effective tool when used appropriately to align an organization to operational objectives with financial measurements and results. And a CEO and a CFO should be using this process

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Tom Amato: To improve the effectiveness

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Tom Amato: of an organization, and also the alignment of an organization. Dean and I were part of an organization where manufacturing was pitted against the sales force, and, you know, there are… in a larger organization, there can be political and other

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Tom Amato: Activities, with people jockeying for results and acknowledgement.

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Tom Amato: The CEO and the CFO need to make this process Effective.

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Tom Amato: And align people to achieve the goals and the objectives of the organization, rather than suboptimal activities that they’re aligned with.

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Tom Amato: So, there’s a human element.

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Tom Amato: to it.

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Tom Amato: And somewhere along the line, you gotta make it fun.

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Tom Amato: Because if it’s all dreary, and task.

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Tom Amato: Like Yogi said, nothing difficult’s easy, but you can have some fun along the way, too.

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Tom Amato: And, and celebrate success.

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Dean Zambelli: Those are the stretch goals, right, Tom? That’s what makes it fun.

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Tom Amato: Yeah.

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Tom Amato: Well, yeah.

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Tom Amato: Yeah, there’s all kinds of psychology. When you’re a public company, you’re… you’re trying to achieve results that you’ve laid out in the real world. A private company

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Tom Amato: It can actually be healthier if the owner has a healthy long-term attitude about the business.

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Tom Amato: And I also think that as a CFO, in this budgeting and forecasting process.

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Tom Amato: I think of the responsibility as a steward. You’ve got a business owner, and your responsibility is stewarding the resources

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Tom Amato: of that… Organization in order to get the best result possible over the longer term.

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Tom Amato: And you’re also looking for ways to mitigate risk. One way to mitigate risk is try to anticipate the downside of business decisions.

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Tom Amato: As opposed to just learning about them real time.

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Mike Merkur: I had, maybe a complicated question.

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Mike Merkur: In a few words, I have a good amount of mentors, advisors, Some of them are…

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Mike Merkur: mega-rich venture capitalists who I’ve befriended over the years, and they’re like, great, Mike, you filed patents, you invented a bunch of crazy mad scientist tech stuff in your basement, but

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Mike Merkur: what’s the product? Show me some kind of business plan, and I guess the problem is, I’ve always been getting by on, like.

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Mike Merkur: you know, reprogramming a MacBook Pro and then putting it in front of some rich Jewish guy, or taking apart, like, a, you know, a numpad, color coding it, and pairing it to some weird computer system. So the question, I guess, is, what really goes through the mind of a…

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Mike Merkur: 60-year-old guy who’s worth $100 million. What does he mean when he says he wants to see, like, a… a business feasibility or a business plan? Not just weird crap?

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Tom Amato: Okay, when you… Produce something, whether it’s a product.

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Tom Amato: A, you know, physical product, or service or piece of software.

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Tom Amato: The question becomes, how do I monetize it? How do I conceive of an addressable market

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Tom Amato: And a way to get to that market.

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Tom Amato: And a value proposition that values that product or service.

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Tom Amato: And what he’s looking for is You’re the inventor.

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Tom Amato: there is a transition between the invention and a commercial market and a business. And, what I would say, Mike, is

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Tom Amato: While you may not have the internal skill set of visualizing that commercialization, and your skill set is inventing products and services.

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Tom Amato: You need a partner that comes alongside of you.

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Tom Amato: And believes in you and your product and services, and helps you visualize or plan out

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Tom Amato: how you take… how you value the product and service, and how you take it to market. How you develop a channel to reach the people that might want to use your product or service. And… and that’s…

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Tom Amato: I don’t know that that’s a mentor as much as it is a partner that comes alongside of you and helps you understand how to commercialize what it is you’ve invented.

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Adrian Dewey: There’s a really good framework called Jobs To Be Done.

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Adrian Dewey: Which, can be very useful to structure an approach to doing that with a partner, who can sort of guide you through that process, but it’s incredibly powerful in terms of focusing you.

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Mike Merkur: Hi, I think, thank you, thank you for that. And, sorry, a mini follow-up,

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Mike Merkur: I think I have found such a partner to the point where it’s like.

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Mike Merkur: Mercer, you’re crazy, but I like that crap in your basement. Maybe, maybe, let’s, let’s join together. What then would the partner… what’s going through the partner’s head who’s, who’s the marketing business guy who has clout in a useful industry or vertical?

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Tom Amato: Okay, Mike, they… they may have bare vision.

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Tom Amato: What’s important for you is to be asking the question, show me how we commercialize this.

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Tom Amato: product or service.

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Tom Amato: Show me how we value it.

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Tom Amato: Show me… You may already have in mind the problem it solves, The incremental service it provides

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Tom Amato: Help me understand how to value it, how we can be compensated for it, and show me how we can take it to market, realistically. And what does it cost? What resource do we need in order to commercialize it?

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Tom Amato: And how can we raise that money?

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Tom Amato: Or is there a pilot that we can identify that uses this product or service in such a way that it becomes clearly understood that it has value? Somebody’s willing to pay for it.

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Mike Merkur: Amazing. I, you’ve given me what, much homework, and thank you for that. Amazing.

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Mike Merkur: Tom, you have, like, 30-plus years in the.

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Tom Amato: I can’t… I lost count, you know? On the boat… on my cake, all the candles.

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Tom Amato: I don’t blow out the candles, I just live in the glow.

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Mike Merkur: You’ve seen this a thousand times, so you’re speaking from… as a veteran of war, so to speak, I get it.

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Gershon Morgulis: Alright.

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Gershon Morgulis: Thank you all. Thank you all for joining us. Thank you for those who, participated, asked questions, listened. Thank you to our amazing presenters today.

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Gershon Morgulis: Any final questions, or…

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Gershon Morgulis: Wish you well. Tony… oh, survey, alright.

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Stephanie Giambalvo: the survey.

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Gershon Morgulis: Take a second to fill out the survey, that will help us with.

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Tom Amato: We’re, taking that

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Tom Amato: survey. I just want to thank Stephanie for being my partner. We’ve really enjoyed working together and look forward to, helping other companies through this process.

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Stephanie Giambalvo: Yes, great. Likewise, Tom. It’s been wonderful working with Tom. He’s a wonderful mentor as well.

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Dean Zambelli: Great job, Tom and Stephanie.

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Gershon Morgulis: Thank you.

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Dean Zambelli: But…

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Gershon Morgulis: Thank you both. Thank you again to everyone joining us, and please take a second to fill out the survey. Have a great day, see you all soon.