With the holiday season and vacations behind us, your first urge may be to dive right in to your first quarter projects with renewed energy. But the start of the year is a perfect opportunity to stop for a moment, look ahead to everything your company intends to do in the next 12 months and create a plan. By taking this time, CFOs can help make sure upcoming initiatives step off on the right foot with everything they need to succeed – and that they are in alignment with the organization’s long-term strategic goals.
Do you have the right financial growth plan for the coming year?
Most companies are already well down the path of financial planning for the upcoming year, but as the year kicks off, a reminder never hurts. An ideal budget forecast is built from the bottom up – not mandated by the CEO/CFO – with a strong go-to-market perspective that factors in all the elements necessary to bring new or expanded products and services to market.
For example, have you properly factored in the costs of all of these activities? What headcount do you need to make it all happen, and have you aligned your hiring plan with your growth plan? Here in Austin, as in many other cities around the country, the hiring market is incredibly tight, making this step critical. If you’re looking for top talent to launch a new initiative, it will be important both to focus on a hiring plan early in the year and to have a realistic perspective on the level of effort it will take to find the right people. Let us know if we can help you with your professional search needs for key positions.
A robust financial growth plan should be both strategic and operational: tied into the organization’s long-term goals, but granular enough to make sure everything makes sense and is achievable. Such breakdowns typically include not only yearly numbers, but monthly or quarterly milestones as well.
Have you begun assessing the impact of Revenue Recognition and Lease Accounting?
The new revenue recognition standard is one of the most far-reaching accounting policy changes in recent history, and following hot on its heels is the complex new lease accounting standard. Together, these two changes may have a monumental impact on your business, which is why you should begin focusing on them sooner rather than later.
Revenue Recognition. We are seeing that companies are starting too late on this massive undertaking because they do not understand the amount of time, planning and resources they will need to address it. KPMG’s 2017 Accounting Change Survey reinforces this point, showing that 60% of public companies have been running behind schedule with their implementations. Nevertheless, the deadlines are here: most public organizations have already started, but all of them will have to report under the new rules in 2018, and the effective date for private companies is January 1, 2019.
The new standard has potential ramifications across all aspects of the organization, affecting the way you sell and deliver products, whether you need to make IT system changes in order to track necessary information for reporting, and whether you need to change sales compensation plans to reflect any changes to how products are being sold and revenue is being recognized. These changes require a massive level of effort, and many companies have been caught off-guard. Read my interview with our own David Machazire for a first-hand look at a recent ASC 606 assessment we performed for a public company client.
Lease accounting standard. Another major reason to get your RevRec implementation underway is that it clears the decks for dealing with the new lease accounting pronouncement. Starting next year, there will be a major change in the way companies account for leases on assets such as office space and equipment. As a result, you will need to talk to banks where you have loans to revisit your covenants, because you will have to put big liabilities on the books for lease obligations that have not historically been there. The impact of the new rules will be dramatic and far-reaching. For example, if your executive bonus plans are tied to financial ratios that are affected by change, you will need to work with the CEO and board to reset those thresholds. KPMG also reports that nearly 60% of companies have been surprised by challenges, such as identifying embedded leases and selecting an adequate leasing system. The sooner you begin to address the new standard, the better off you’ll be.
Have you buttoned up your IT security?
In many cases, the IT function reports to the CFO, and we are hearing from our conversations with boards that they are becoming more and more concerned about IT security issues. There are excellent reasons for these concerns: breaches such as ransomware and phishing attacks are no longer a matter of “if”, but “when.” Cyberattacks can bring operations to a halt, expose private customer data and create public relations nightmares. But if part of your plan for 2018 is moving some or all of your critical data and applications to the cloud, don’t let concern about the risks halt your momentum. Instead, make it a priority to understand your data security exposure and do your due diligence when selecting a cloud service provider. And if you already have a significant presence in the cloud, make it a priority this year to review and update your risk management strategy so that you can move with confidence along your path to digital transformation.
Have you identified changes or upgrades you need to make?
Speaking of digital transformation, the beginning of the year is also an excellent time to take a strategic look at your company’s approach to digital technology. Do you need new systems in place to enhance your customer experience or meet changing expectations? What about your productivity and ability to compete? Are there any systems that are nearing end-of-life or creating integration issues? If the answer to any of these questions is yes, it may be time to thinking about upgrading your ERP system or CRM software.
To the extent that any IT system changes are anticipated for 2018, you need a thorough plan for their implementation – and sufficient lead time for those efforts. Many organizations have made the mistake of thinking ERP or CRM upgrades can be tackled over a long weekend. However, the reality is that these projects can take three months or more to complete and can easily spin out of control, taking budgets with them. That’s why it is critical to make sure the process is carefully planned to minimize disruptions and anticipate the level of effort required. Our advice is to start planning now – and to make sure your upgrade budget is incorporated into your financial growth plan.
Have you put a plan in place to retain high-quality talent?
Here’s something we have seen demonstrated time and time again: It is far easier to keep really good people than to lose them and be forced to hire more good people. One reason is the tight labor market. In the major Texas marketplaces, employment is touching on all-time highs, particularly for the highly skilled employees that readers of this article will be looking to hire.
Another reason is that replacing good people is expensive. The SHRM Foundation suggests that when you factor in severance, productivity and recruitment costs, the true cost of replacing an employee can be as much as two times their annual salary.
If your top talent is starting to eye the door, the reasons could range from salary issues to company culture to lack of challenges and opportunities for development. The new year is a reminder to take a hard look at everything you need in order to retain your best people. Have you reviewed compensation and benefit plans? What about career development and advancement plans? Take the opportunity to look beyond financial incentives and into company culture as well. Do you have an environment that encourages innovation, leadership and teamwork? Do your people feel that they make a difference in the success of your company? Your compensation package may be part of what attracts great employees, but creating a culture in which people are valued and engaged will keep them excited about coming to work and helping your company achieve its business objectives.
From forecasting to systems to maintaining talent and anticipating major changes like revenue recognition and lease accounting, the overarching concept here is appropriate planning. It’s far too easy for busy executives to get caught up in the day-to-day and forget to look beyond next week to the needs of the coming year – and to the future. Taking the time you need now to create a strategic growth plan that factors in operational improvements, regulatory changes, security, technology and people will give your organization a strong foundation for creating agile, sustainable growth in the new year.
At Bridgepoint, nothing is more satisfying to us than helping our clients solve their biggest business challenges. We understand the complexities you’re facing and offer deep expertise in financial operations, information technology, and risk & compliance to support your business and ensure its success through every stage of growth. Explore our full suite of services and let’s work together.