Financially, which way ought you go from here?

“Would you tell me please, which way I ought to go from here?” “That depends a good deal on where you want to get to,” said the cat. “I don’t much care where…” Said Alice. “Then it doesn’t matter which way you go,” said the cat. – Lewis Carroll, Alice in Wonderland

Your organisation is in a current position. It has a certain level of revenue, a certain number of employees and makes a certain impact.

From a financial perspective you need to know where you ought to go from here. Asking this question allows the following:

  • It forces key stakeholders to consider the future of the organisation
  • Multiple parties can be brought into an overall vision, including board members and third-party stakeholders
  • Realistic operational and strategic goals can be set
  • Potential pitfalls can be identified before they happen
  • An actionable road map for the organisation can be developed

As we move into 2020, the question arises, financially, which way ought you go from here?

There are three main areas – financially – that your organisation should be planning.

Revenue

Your organisation’s revenue determines its size, resources and impact.

As simple as it sounds, future revenue can only go one of three ways – it can decline, remain stable or increase. The first question therefore is do you want to grow your organisation, keep it stable (this should include growing by inflation, at the very least, and ideally slightly above inflation), or do you want to reduce the size of the organisation?

This may sound like a simple question, but it is vitally important. Our clients often have very strong views that they either want to grow, or stay around the same size. We don’t come across many organisations wanting to scale back! Often the decision to hold station is mission based – a sense that the organisation is delivering good impact to the community, and that risks being lost by scale. Sometimes it’s operational – particularly where recruiting for growth is a challenge.  An organisation that is looking to triple in size will have significantly different operational and strategic goals to that of an organisation that is looking to grow at slightly above inflation.

Cash reserves

The next question should look at what you want in terms of cash reserves in the coming year. Is your current level of cash reserves adequate? What level of cash reserves is sufficient for your organisation?

These two questions are crucially important and will not only indicate the financial health and long term sustainability of your organisation, but will also set the tone for the target levels of surpluses that you should be looking to generate in the years to come.

Surpluses 

The third area your organisation should plan for is the target level of surpluses to be generated next year and in the years to come.

If your organisation is currently holding insufficient cash reserves, you can build these by generating surpluses. The level of cash reserves required and the gap between where you are now and where you want to go will play a role in determining your target level of surpluses in the coming years.

Clearly, your revenue, cash reserves and surplus requirements are closely related and you can’t set targets for any one area in isolation to the others. Your targets should be set in the context of your market and operating environment. In particular, ambitious targets for revenue growth need significant planning to ensure that they are realistic, that you have included the necessary expenses to achieve growth (such as additional marketing and wage costs) and to understand their impact on your cash reserves and surplus.

If you feel that your organisation would benefit from a financial strategy session, please contact 1300 763 505 for an obligation free consultation with one of our CBB consultants.

 

Dimitri Matsouliadis
Business Consultant
Email: dmatsouliadis@cbb.com.au
Phone: 1300 763 505

 

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