• Skip to primary navigation
  • Skip to main content
Ledge Financial

Ledge Financial

Leverage to Launch

  • Who We are
  • Services
  • Blog
  • Get in Touch
  • Resources
  • Client Portal

What are the Key Differences Between Budget and Forecast? (Here’s Our Take)

Ledge Financial · June 2, 2023 · Leave a Comment

When was the last time you thought about money? It probably wasn’t that long ago if you’re the CEO of a high-growth company. Cash flow questions and worries go with the territory. But you knew that going in, and you have the stomach for it.

In the beginning, you could keep up with the numbers. Now, after several record quarters in a row, the numbers are getting bigger, and planning for what happens next is getting more complex. This is when CEOs usually start considering a virtual CFO.

Deciding who to share your finances with is one of the most important decisions you’ll make at this stage in your business. This post prepares you to vet virtual CFO partners by summarizing the differences between a budget and forecast – two of your most powerful financial decision-making tools.

Keep reading for the key differences between budget and forecast.

Photo of someone holding a financial chart- Differences Between Budget and Forecast blog featured image

What are the key differences between budget and forecast?

Financial terms can be used interchangeably or differently depending on your background. From our perspective, two things separate the idea of budget and forecast: timeframe and decision-making insights.

  • Budgets focus on where you stand and what happened to get you there. During the process, you’ll look at your income sources, expenses, cash reserves, and debt. The overview is then used as a benchmark to measure performance. These numbers are relatively static because they are usually short-term or moment-in-time snapshots.
  • Forecasts project what your finances will look like in the future. Various methodologies are used in this stage, and the data is used both for the short- and long-term. Forecasting is a more dynamic process, and you may make adjustments as your business or the marketplace change.  

Why are these differences between budget and forecast important?

If you’re considering working with a virtual or fractional CFO, it’s essential that you clearly understand what to expect out of the relationship. This includes how you’ll start, what you need to provide, how to use the information to move the business forward, and when to revisit decisions.

Our budgeting and forecasting approach

Virtual CFO services can vary from firm to firm depending on industry focus or client mix. We’ve refined our services at Ledge Financial after working primarily with software, technology, and professional services companies. Our experience informs our approach. Following is a high-level overview.

Budget

Let’s cover something right off the bat. We’re not big fans of the word budget. It triggers many people who find the idea of a budget restrictive or punitive. That’s not how we operate. Instead, we view a budget more like a spending plan or a snapshot taken at a particular time.

We start our engagements by clearly understanding your numbers using a standard formula. This can be challenging, but our formula makes the process transparent. When you complete this step, you’ll have cleaner data and better insights downstream. So it’s essential to do it first and get it right. Then you’ll have more accurate and meaningful benchmarks to inform your subsequent decisions.

From here, we get into the spending plan. The goal is clarity for better decision-making. Once everyone feels good about the numbers, we turn our attention to the future.

Forecast

Now we’re in more dynamic territory. We build a long-term view of your overall financial position. There are several forecasting methodologies, which we’ll walk you through based on your goals. In some cases, we may step back to reassess the spending plan, but we stay focused on the future most of the time.

Our software tools can provide you with reams of data. Instead, we determine what matters to you and agree on metrics upfront. Then, as long as everything’s tracking, we’re good. If not, our team will help you get to where you want to be. Every month we’ll decide whether to revisit the forecast if market or economic indicators projections shift.

We keep you focused on the metrics that matter most throughout the process so you can handle spreadsheets, presentations, and pivot tables. And because we serve a specific niche, we have proven systems that have helped hundreds of companies stay on top of their finances.

Two people working together on laptops- Differences Between a Budget and Forecast blog image

Need budgeting and forecasting support?

Now that we’ve broken them out separately, it’s a little easier to see the key differences between budget and forecast. But for more clarification or insights, we are always here to help.

Although we’re full-fledged number geeks, our passion is building relationships. We want to get to know you, understand your why, and help you achieve your growth goals.

Whether you need help with budgeting, forecasting, tax planning, or tax preparation, we can look at the whole picture of your business and create a financial plan that actually works. Ready to get started?

How to Make Smarter Business Decisions With the Right Financial Forecasting Method

Ledge Financial · June 2, 2023 · Leave a Comment

For many high-growth companies, the idea of a financial forecasting method is synonymous with a popular four-letter word. No, not that one! We’re talking about CASH, one of the most critical metrics for growing companies.

What the focus on cash can miss, however, is the many ways that a financial forecasting method can help companies make smarter business decisions and run more profitable businesses. When it comes to the fast-paced world of a growing company, making smart business decisions is one of the most important levers you have.

Photo of coworkers celebrating- Financial Forecasting Method blog featured image

What is a financial forecasting method, and why is it important?

Using a financial forecasting method helps you understand and project your financial situation if various conditions are met. Unlike a budget or spending plan, a forecast is dynamic, and it’s common to adjust it as your business or market conditions change.

A forecast aims to help you continually refine your projections to become as accurate as possible. This gives you confidence about your finances so you can focus more on what you enjoy doing in your business.

Not every client watches the same figures in their forecast (e.g., sales, expenses, cash, profits, KPIs) but what remains consistent is having a high-level view of your entire financial picture. 

How does a financial forecasting method help you make better business decisions?

A detailed financial forecast is as essential to your business as a strategic plan. (And some would say the 2 are the same.)

A thought-out financial forecasting method can help you see when it’s time to lean in hard or double down on what’s working. Or it can help you quickly identify when it’s time to back off or slow down to keep your business financially healthy.

As with many aspects of running a company, there’s some nuance involved. But generally speaking, our clients use their forecasts to make a wide range of business decisions.

Paying yourself

As a CEO, you may have a general notion of what you should make in terms of income. By using a forecast to make this decision, we can back into your income goal and show you everything that needs to happen in your business to hit your goal. Then, you can pay yourself with complete confidence, knowing you’re not causing a potential cash issue down the road.

Hiring Employees

Another area where forecasting is helpful is adding new members to the team. Many CEOs consider additional staff as an outright expense equal to the person’s salary, which feels like a huge hit all at once. Using a forecast can help you put this decision into a broader context.  

For example, how much additional revenue can you expect from another team member? What’s their ramp-up timeframe? What if you hired more than one person? Or took a phased approach to staffing up?

Hiring employees is more complex than considering their salary a straight expense. A forecast offers you more data points.

Raising prices

If you’re at the stage where you’re considering raising your prices, a forecast can help you here as well. For example, we can model various pricing scenarios to see how they’ll flow through your financial statements. 

Maybe you want to see how raising prices at regular intervals (e.g., annually) would impact the bottom line over time. Or look at how to incorporate downstream expenses into your long-term pricing strategy. Here again, a forecast offers the insight you need. 

Monitoring the pipeline

A company is only as healthy as its pipeline, but letting potential business give you a false sense of security is easy. Sometimes, clients need tough love to balance their optimism with realism. For example: what’s the likelihood that a prospect will convert based on previous win rates? When do you count something in the pipeline as money in the bank? What specific criteria will you use? 

A forecast can help you answer these questions and decide whether to take a conservative or bullish approach (hint: we’re big fans of waiting to count income until the contract is signed).

Empowering the team

This is perhaps the most crucial benefit that forecasting can offer your team. When you involve your team in the development and ongoing management of a forecast, you’re setting everyone on the team up to make better, more informed business decisions. 

Someone working on a laptop- Right Financial Forecasting Model blog image

What’s unique about our forecasting approach?  

At Ledge Financial, we see forecasts as a living, breathing, and ever-evolving view of what’s happening in your business and your most accurate source of decision-making insights. That’s why we operate a little differently than some financial firms. 

First, we start at the beginning to get your data as clean as possible before using it to build a forecast. Putting in this extra effort up front gives everyone more confidence in the story the numbers tell. 

Next, we analyze cash because this tells us how to move forward. Usually, cash follows one of two paths:  

  • The “oh sh*t” cash flow approach: We know you don’t want to be in this position. So, we’ll join forces with you and help you get back on track as quickly as possible. It starts with a down-to-the-penny financial forecasting method that removes emotion and offers clarity. This approach is about speed and decisiveness. 
  • The standard cash flow approach: if you’re more flush and need to understand your opportunity better, we like to use a 60/20/20 benchmark. Under this approach, we’re assessing whether 60% of your expenses are for product costs or labor, 20% are operating costs, and 20% of your revenue is income. This view provides a quick indication of where problems may be hiding and gives you clear next steps.  

Finally, once we have a clear view of your cash position, we move into more detailed financial advice tailored to your business. 

Ready to make smarter decisions? 

As number-loving owners, we live and breathe forecasts daily, but we know you don’t. If you decide to work with us, you can trust that we’ll start by getting to know you and your dreams, and we’ll build your forecast with great care. 


This relationship-centered approach may be a little different than what you’re used to. We’re OK with that. Being invested in your success is the single most important metric we track. If that sounds like the kind of financial partner you’d like to work with, let’s get started.

7 Benefits of Working With a Virtual CFO

Ledge Financial · June 2, 2023 · Leave a Comment

There are few things worse than a cash flow problem. So it’s no surprise that’s what usually drives high-growth companies to look for a virtual CFO.

When you’re already challenged with more than you can get done in a day, spending your nights worried about profitability makes it worse. You’re maxed out. Your team’s maxed out. And while everyone knows the bottom line is critical to your growth and success, nobody in-house has the right skill level or experience to lead the path forward.

If you feel like you’re the only one facing this, we can assure you that you’re not. After more than 10 years of working with high-growth companies, we’ve seen how much stress cash flow can cause. This is especially true for technology and software companies because staying lean is one of the key components to profitability. Eventually, though, you need more sophisticated financial expertise to ensure you can grow profitably. At this stage, a virtual CFO might be the answer. 

Two people working at computers- Virtual CFO blog featured image

What’s a virtual CFO?

A virtual CFO (sometimes called a fractional CFO) is the finance arm of your business. The only difference is that they work part-time or tackle your priorities on a project basis rather than joining your team full-time.

They can handle all your strategic finance needs, like accounting, budgeting, and forecasting. If you need day-to-day operations support to monitor cash flow and manage payroll, virtual CFOs can do that as well. It’s like having an experienced CFO and a finance department without building one yourself.

What are the benefits of working with a virtual CFO?

Here are the themes we repeatedly hear from prospects, clients, and industry colleagues about how working with a virtual CFO improved their business and helped them grow.

Benefit #1: Cost

When you’re a lean team, the cost of adding even one more person can be entirely out of reach. For example, in the tech space, you’re looking at a minimum $160,000 investment to get a full-time person who understands high-growth finance. But what if you could add just part of someone’s time? Suddenly, getting the experienced talent you need is back on the table.  

Benefit #2: Ability to scale

Scale is related to cost, but there’s some nuance here. If you’re in growth mode, starting with a virtual or fractional CFO is easier. This allows you to add more or different services as needed or as your strategy evolves. Keeping a finance resource busy full-time is hard until you hit the $10 million mark. Adding an FTE too soon means you’re paying a full-time salary when it may not be necessary for your business stage.

Benefit #3: Outside perspective

When you’re passionate about your business, you’re close to it. Really close. That means you may not have the best vantage point to identify certain issues. An outsider can be direct and honest about the numbers in a way that insiders sometimes can’t. (Who wants to ruin the vibe among their colleagues or give bad news to the boss?)

A virtual CFO is removed from the inner workings just enough to bring an outside and objective perspective to your challenges and opportunities. We’re not in the weeds, and that’s a good thing.

Benefit #4: Emotion

This business is your baby. We get that. Ledge Financial is our baby, too. But when you’re a founder/owner/CEO, sometimes you need a financial partner who’s less connected to the pure passion you have – someone who can take the emotion out of it and tell you what you need to know.

On top of that, money itself can be an emotional topic. Each of us has our own money stories – fears, insecurities, and concerns. It can be heavy stuff to navigate on your own. You want a virtual CFO who can be part coach, counselor, and confidante so you feel emotionally safe putting it all out there.

Benefit #5: Industry knowledge

When you work with a virtual CFO specializing in your market niche, you’ll have a partner who knows where to start, what to look for, and how to put the pieces together. Fast. That’s because a niche-specific virtual CFO has already seen what strategies get ROI for similar companies and can get you to actionable insights and perspectives more quickly. 

Two people working together- Virtual CFO blog image

Benefit #6: Clear next steps

You carry an enormous internal burden when you have cash flow problems or other financial issues. It’s draining. And it’s distracting. But it can improve more quickly than you think.

An experienced virtual CFO can assess your entire financial position and give you a clear plan forward with detailed next steps. With this clarity, you can focus on what you love: people, processes, technology, and strategy.

Benefit #7: Range of expertise

Top-tier fractional CFOs have a team of subject matter experts who bring different backgrounds, skills, and experiences to their client relationships. At Ledge Financial, we work as a team and bring in the necessary resources to fulfill our client’s needs. This is another way you get the value a CFO and finance team would deliver, but you don’t have to invest in building an entire team.

Need financial advice?

Need someone to counsel you on the financial side of the business and offer you honest, forward-looking financial advice that helps you grow?

We’re known for being real people who just happen to be super smart numbers geeks. We can look at the whole picture of your business, from monthly books to tax implications, so you have a financial plan that actually works. Let’s connect.

The Ultimate Buyer’s Guide for Outsourced CFO Services

Ledge Financial · May 24, 2022 · Leave a Comment

It’s the stuff entrepreneurs and founders dream of. You’re a few years into the business and starting to hit your stride. What was once your first million-dollar year quickly becomes your first 5 million-dollar year. Maybe even 10 million.

As your business grows, you want to spend time on the areas you’re passionate about like strategy, innovation or your product roadmap. However, that’s hard to do when you’re responsible for everything – people, processes, technology and finance.

What’s more, your entire team is operating at capacity. So, nobody else has time to focus on your finances or help ensure you can scale, even though a healthy balance sheet is critical for your continued growth and success. 

If this sounds familiar, it may be time to bring in an outside finance partner to help. Someone who can counsel you on the financial side of the business and offer you honest, forward-looking financial advice that helps you grow. 

This role is usually called an outsourced CFO, a fractional CFO or a virtual CFO. No matter which term you use, this guide covers everything you need to know about how to bring one onto your team, including:

  • What is an outsourced CFO? 
  • Why do companies outsource a CFO?
  • How to know if your company needs an outsourced CFO
  • How do you evaluate which firm is best for your company?
  • Preparing to onboard your CFO
  • What to expect from outsourcing a CFO

What is an Outsourced CFO?

An outsourced, or virtual, CFO is the finance arm of your business. They handle all your strategic finance needs like accounting, budgeting and forecasting. They can also address the day-to-day operations like monitoring cash flow and managing payroll. 

It’s like having a CFO and a finance department without building one. 

Person working at a laptop- Outsourced CFO blog featured image

Why Do Companies Outsource a CFO

As companies grow, especially when it’s happening quickly, they need access to different counsel and advice. The focus has to stay solely on the future and looking ahead. 

Not every accounting firm aligns with this high-growth way of doing business. Some are more skilled at looking backward. However, boutique finance firms, like ours, have deep expertise in working with founders and entrepreneurs whose annual revenue reaches the 20 million mark, roughly. Once you reach this threshold, we’ve found that it’s probably time to add someone internally and work with a fractional CFO in a more consultative way.

Generally speaking, this size company realizes these benefits from outsourcing their CFO function: 

  • Building a team of advisors – It’s common for founders to supplement their small internal team with a few external experts. 
  • Gaining an external perspective – Sometimes, you just want to bounce an idea off someone not on your team. You know, get a third-party reality check. Here’s where an outsourced CFO can be a lifesaver. 
  • Having access to a broad range of financial expertise – An outside finance partner can offer the full spectrum of knowledge you need depending on your current challenges. 
  • Partnering with growth-minded vendors – High-growth companies want to work with high-growth partners. It’s a shared passion that’s hard to describe. If you know, you know. 

How to Know if Your Company Needs an Outsourced CFO

In our experience, founders and CEOs in any industry can benefit from outsourcing a CFO. Usually, they bring someone on when they’re facing one or more of these challenges:

  • Spending less time in areas of the business where they find passion.
  • Using weekends to catch up on financials or unravel a financial challenge.
  • Facing a specific financial challenge (e.g., tax-related).
  • Becoming concerned about the unknowns because you’re moving so fast.
  • Having cash flow problems now or anticipating them in the near future.
  • Lacking someone they can talk to openly and candidly about the financial side of the business.

Of course, there are dozens more things you could add to this list. These are some of the most significant financial pain points founders and CEOs are experiencing when they give us a call.  

How to Evaluate Which Outsourcing CFO Firm is Best for Your Company

If you’re considering a fractional or outsourced CFO, you will, of course, want financial expertise. That’s table stakes. Beyond that, here are some things you should consider: 

  • Can you learn from this person?
  • Will they push back and challenge you?
  • Do they add something to your internal team?
  • Are they growth-minded?
  • Can you see yourself working with them long-term? 
  • Do you feel a personal connection?

If a few of these surprise you, we believe work is more rewarding when people pass the vibe check – even when it comes to finance. This is especially true if you’re facing a significant financial challenge. If that’s the case, you deserve to feel like you can trust the team you’re working with to sort it out on your behalf.

Preparing to Onboard an Outsourced CFO

As part of your decision-making process, you’ll want to get your fractional CFO up to speed quickly. Ask potential vendor partners how they:

  • Evaluate your current/state financials
  • Identify your top finance priorities
  • Approach your most critical challenges
  • Focus on getting money in the door

Then, ask how they stay involved with you and your team to shift the focus back to looking ahead and continuing to grow. They should have a flexible but templated approach to ensure you have a good onboarding experience.

What to Expect From Outsourcing a CFO

Your business has its own rhythms and routines. An experienced virtual CFO will be able to drop right into that. They’ll focus on setting up your monthly financials, managing your cash flow, and taking care of your budgeting, forecasting, and reporting requirements. 

In addition, you should have a regular cadence of touch-base meetings to ensure you and your internal team have the information you need to:

  • Make decisions
  • Take advantage of opportunities
  • Invest in the business

One advantage to working with a smaller, boutique CFO is the ability to customize what you need. No two situations are truly the same, so you don’t want a one-size-fits-all approach.

Growing a Business Should Be Fun

At this point, you may have noticed we’re not a traditional accounting firm – no pinstripes and navy blue suits here. We take a more modern approach and unapologetically lead with our hearts. We care about people. We prioritize building relationships.

You see, we’ve been in meetings with new clients where you can see the worry in their eyes. They have a cash flow problem (or worse), and they know it. As a result, they have no choice but to lay their situation bare to us. 

It’s a humbling experience. 

It’s also extremely rewarding when you see that same client and notice their smile is back just a few weeks later. They’re feeling lighter already. 

Although we love numbers, our passion lies in building relationships. We want to know you and your business so that we can provide education and services that meet your unique needs.  Allow yourself to focus on whichever aspect of the business you are most passionate about and leave the financials to us. Reach out to Ledge Financial today to take the next steps toward hiring an outsourced CFO. We look forward to hearing from you!

Resources
Tax Payments
  • To the IRS
  • To MN
  • To WI
Estimated Tax Payments
  • To the IRS
  • To CA
  • To MN
  • To WI
  • Who We are
  • Services
  • Blog
  • Get in Touch
  • Resources
  • Client Portal

contact us

Loading

Connect with us.

  • Email
  • Facebook
  • LinkedIn
  • Twitter
612-888-3950

Copyright Ledge Financial © 2023 · WordPress · Log in