Profitability and Treasury Problems, when the desired situation is different from the real situation

Profitability and Treasury Problems, when the desired situation is different from the real situation.

We have profitability and liquidity problems in the company when the real situation is very different from the desired one.

If, for example, the desired situation is to have cash stresses and losses, and the actual situation is that the company has cash stresses and losses, then the company has NO PROBLEMS.

But I wonder that no company WANTS to have losses or treasury tensions, therefore, if the reality is different from the desired situation, then the company DOES have PROBLEMS.


But how to establish the desired situation?

Wishes and desires can be exaggerated, disproportionate and unrealistic.

I would love to be able to earn a million Euros a month for 10 years and thus retire quietly. Is this a desired situation? Obviously, it is a difficult DREAM to achieve as it differs in a very exaggerated way from reality, from the available resources, from the market, from the environment…


A feasible desired situation could be “Grow my income by 10% more than the previous year”

It would be a realistic, achievable, measurable and motivating objective (SMART Objectives)

I know that I can achieve it if I put in the effort, the resources, the perseverance and the necessary means for its fulfillment.


In case that I do not reach the objective that I have set for myself, I could detect in what I have failed, thus allow me to think of SOLUTIONS or IMPROVEMENTS to achieve the objective for the next year.


As you can imagine, everything I am commenting on in a simplified way is what is managed in a BUDGETARY CONTROL SYSTEM.

A BUDGET is the desired situation (an objective) that obviously has to be SMART, that is, realistic, achievable, measurable, motivating…

But unlike traditional BUDGETARY CONTROL systems, in which we wait until the end of the year to compare the real situation with the desired one to apply solutions or improvements for the next year, the ideal MANAGEMENT of a BUDGETARY CONTROL system is to be able to apply improvements or solutions throughout the current year.


How can we apply improvements and solutions to achieve the desired situation before the end of the year?


In advanced budget control management systems, it is not necessary to wait for the end of the year or the accounting close of each month to assess the deviations between the actual situation and the desired one (budget or objective)


Controllers accustomed to working with BUDGETARY CONTROL systems use a methodology of PROJECTIONS that are as realistic as possible, derived from external situations (changes in the environment or the market) or internal situations (decisions in relation to the internal management of the company’s resources)


An external situation can be the forecast of the increase in the cost of raw materials from a certain month. For example, until October we had a cost of raw materials, but we know that from November the cost will increase by 25%.

This information does not catch us by surprise, it is information that we already have, and we know that it is really going to happen.


In relation to internal situations, that is, PROJECTIONS derived from the decisions, or the management carried out by the company of the internal resources available to it. For example, if we know that we need to hire more sales staff from a certain month to encourage sales growth, this decision will have an impact on staff costs and in the income for the coming months, we can increase costs foresee perfectly since we know the cost of the company that the new hires will suppose, and with respect to the increase in sales we can make an estimated projection of the growth that will result from the hiring of the new sales force.


Therefore, all decisions can be quantified in PROJECTIONS, that is, we know what is going to happen in the coming months before the end of the year, either because we have the information or because we make decisions and know the amount derived from themselves.


If we can quantify and measure the PROJECTIONS of the coming months and combine them with the actual data that has already occurred and that we have recorded in the closed accounting months, we can generate a scenario for the entire year (ACTUAL Data + PROJECTIONS) that allows us to have an anticipated vision of the final result, and thus be able to compare it with the DESIRED SITUATION (Budget or Objective)


If the annual scenario combining actual data + projections differ negatively from the DESIRED situation, then we have PROBLEMS. But these problems can be corrected, rectified or you take the necessary measures to solve them before the end of the year.


In this way we have the best of the tools and methodologies that allow the company to be able to reach or approach the DESIRED situation to avoid PROBLEMS.


This methodology and technique is applied in the following management model: BUDGETARY CONTROL based on PROJECTIONS.


At the same time, profitability is related to liquidity, so it is advisable to complement it with a TREASURY FORECAST SYSTEM.


And at the operational level, for effective planning, scenario generation and decision making, it is advisable to implement a SYSTEM for CALCULATING COSTS and BUDGET MARGINS.

Budget Control Excel Year-to-Date & Full-Year Forecast
Download Budget Control Excel M15

Budget Control Excel Full-Year Forecast M15

Download Excel Cash Flow Forecast Report M15

Excel Template Cash Flow Forecast

Excel Budget BOM Manufacturing Costs and Margins M15

These 3 techniques are the fundamental pillars to avoid economic PROBLEMS and promote continuous improvement management that allows the company to be more competitive.

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Dani Granero

Controlling Consultant
Controller ODOO ERP

Dani Consultor Controller y ODOO


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