A Month in the Life of a Portfolio Finance Director

As we approach the end of 2023, 53 shopping days until Christmas, I have been focusing this month on planning for 2024. I have already worked with my clients on agreeing their strategic direction and we have already been discussing possible 2024 initiatives. This month has been about putting some numbers to those conversations so we can start to finalise the 2024 Forecasts. I though that it may be useful to small businesses out there for me to give an overview of the approach that I use to generate these forecasts. I talk them through these steps to make sure that they fully understand and commit to the plan for 2024.

Overview of Methodology

The methodology that I use is nothing new, but I thought it may be worthwhile explaining for those who aren’t familiar with forecasting.

Step 1- 2023 Out turn

I highlight the performance year to date from the most recent management accounts, I then add the forecast trading performance for the remaining months of the year to give an estimated 2023 outcome. My clients are already familiar with this I discuss it at every board meeting.

Step 2 – Underlying Trading Performance

I then adjust the 2023 out turn for 2 things. Firstly, I remove any one-offs, which will not re occur, for example one offs legal fees or expenses with an office move. Secondly, I annualise any changes, for example if the client reduced staff levels part way through the year then I show the full year impact.

Step 3 – Known Changes

I show the changes which we now are going to happen and are largely outside our control. Things like the impact of changes to the national minimum wage or already agreed pay rises. This give the outcome is the business did nothing different.

Step 4 – New Initiatives

As mentioned earlier I have already discussed with my client’s potential ways to improve the business. This is finally agreeing the financial impact of them in 2024. Then we have an overview forecast for 2024 which the management team can commit to. After this I work on showing this by month and by division, preparing a cashflow and balance sheet forecast model.

Step 5 – Annualised 2024

As some of the initiatives will occur part way through 2024, I calculate the run rate for 2024, effectively what would happen in 2025 if nothing changed. This allows management to have an idea of where the business is headed and a view on what it may be worth. I hope some small business owners find this helpful and if you want to know more, please get in touch.

Jason Soars, Portfolio Finance Director