The first articles Focus Management Group has posted this new year 2025 focused on KPIs, budget to actual reporting, and tracking interim financial performance. As 2025 unfolds, companies need to focus attention on what they are able to change and how they could protect their performance. It is easy to be distracted by news stories about tariffs, inflation, interest rates, etc. While these outside influences are real, it is critically important that business owners and managers focus on what they can manage and change. This year FMG will continue to provide tools and techniques that can help a business manage its performance risk in this environment.
Risk management relies on measurement tools to track performance to plan. The use of KPIs and budget to actual reporting are key to tracking performance to plan.
When FMG professionals arrive at companies we often are told that a weekly cash flow tool is not needed, it is too complicated for the company, or that it will not yield results. At FMG, we believe a weekly cash flow tool is a critical piece of financial management that every company – whether flush with cash or tight on cash – would benefit from preparing and measuring performance against.
A weekly cash flow and budget to actual reporting provide early warning of potential working capital problems. For example, if sales are down and accounts receivable levels have dropped, that is an early warning that future cash inflows will be negatively impacted, which in turn may create the need to work with vendors related to slower payment terms. That analysis may also tell the business its line of credit structure will be difficult to manage, and that an accommodation may need to be requested of the lender. If a business needs to ask a lender for an accommodation, the request should be well in advance and supported by financial analysis.
The weekly cash flow tool and budget to actual reporting alert the business to risk management needs related to cash flow and provide support for requests of lenders.
KPIs also assist in risk management. Production KPIs could provide early warning that there will be sales misses, or possibly increased sales that will require additional working capital during the operating cycle.
Performance impacts such as tariffs or interest rates are often outside the control of an individual business, but measuring financial and operating performance provides a view into the impact of the outside influence with time for the business to adjust or plan. For example, if a business knows its line of credit or term debt will reprice upward or downward at a date in the future, adjusting the cash flow to show that impact helps the business plan for cash needs.
Another example could be a tariff analysis. Knowing the incoming product or the outgoing product and the impact of potential tariffs allows the business to gauge the amount of impact and the speed of the impact. The company may elect to find a new vendor or review contracts with vendors and customers to assess the ability to impact pricing.
Many business managers and owners have not been through either a period of high inflation or a period of high interest rates.
While there was a hope that interest rates would fall as quickly as they rose, that no longer appears to be the case. Businesses need to adapt to a higher cost associated with leverage, and should expect lenders to continue to request equity help ease the leverage position.
While there is fear that tariffs will be widespread, that no longer appears to be the case as tariffs seem to be more focused and are intended to be used as a negotiating technique. That said, planning for implementation of tariffs is a solid risk management strategy for a company. For example, if a business sources an input from a country that may have temporary or long-term tariffs, consider alternative sourcing of the supply needed. The change to alternative sources would enable the business to spread the performance risk across multiple vendors. Businesses that are concerned about tariffs also need to evaluate their pricing strategies and their vendor and customer contracts – both existing and new contracts.
The key to success is measuring performance, and quantifying performance risk. Early warning of cash flow problems and performance problems, coupled with planning for possibilities will help a business navigate 2025 successfully. Companies that do not embrace this type of measuring and planning are at more risk of a lower performing 2025 and that can result in problems with the lending relationship.
If you would like to discuss measurement tools, risk planning, and cash flow analysis please call us anytime. Your 2025 will have a higher probability of success.
J. Tim Pruban
President, email: t.pruban@focusmg.com | cell (813) 918.7488
Juanita Schwartzkopf
Sr Managing Director, email j.schwartzkopf@focusmg.com | cell (520) 203.2926
Joe Karel
Managing Director, email j.karel@focusmg.com | cell (312) 307.1541
John Socarraz
Managing Director, email j.socarraz@focusmg.com | cell (305) 992.5805
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