Are you on the route to commercial suicide?

My headline is slightly metaphorical and really relates to businesses or indeed business owners who don’t truly have control over their business finances, and understand their operational figures. Therefore, when making important strategic decisions they are making those decisions without insight and knowledge; invariably, as a consequence, they haven’t covered all the angles to make sure those decisions are informed with the ability to create tangible results because the starting points were blurred or unknown in the first place. 

You may recognise that emotion; the kind of feeling you get when you make an important decision that affects your business or personal life, but subconsciously you feel out of your comfort zone. Invariably, you may have niggling doubts and fears about your judgement. The decision feels right, but you may have missed something important, it’s in the background and concerning you but you have been unable to pinpoint what it is. Maybe there was a snippet of information that didn’t quite resonate, or could your positive cash flow be in jeopardy because you have missed something crucial. Are you feeling vulnerable because you know in your heart that your decision was made by the ‘seat of your pants’ rather than ensuring in advance that you had dotted all the I’s and crossed the T’s. I have experienced that feeling on numerous occasions during my business career; it isn’t particularly pleasant. However, I have learnt how to mitigate those concerns through following a process of structured logical analysis.

"Making important decisions without being informed can lead to commercial suicide, but through pre-planning, analysis and setting goals it is far less hazardous and much more controlled."

Companies House is littered with failed businesses that have made serious errors of judgement, losing control and subsequently destroying their futures. Historically, poor decisions haven't just been confined to the SME market. Could 20th Century Fox avoided selling the future Star Wars merchandising rights to George Lucas for a measly $20,000, or should Kodak have launched the first digital camera because they had the technology first? These large corporate businesses can still be categorised as the ‘nearly businesses’ for very obvious reasons. To explain this term further…

The ‘nearly business’, had a great idea, or indeed traded profitably for a number of years. They were successful, but in between the success and its strategic goal, which could have been rapidly increasing sales, dominant market share, exit strategy or succession planning, was a chasm waiting to open up and swallow the business. In reality a chasm that could easily of been avoided with more forethought and planning.

I don't do fear!

I apologise if the opening content sounded negative, it wasn’t written to put fear into those who may be feeling slightly vulnerable now, it was written to emphasise one extremely important aspect of running a successful business towards its positive conclusion. We hear daily success stories in business, brilliant ideas that have led to £multimillion exit strategies and very often the one unique difference between those who fall into the chasm and those who reach a positive conclusion is incredibly simple...

So let’s be informed and truly in control

I remember a statement a business owner put to me years ago, ‘to be successful you need a good accountant on one arm, and the bank manager on the other. The success comes if those professionals support you all the way’. Certainly a true statement, and you need support from those around you, but with the complexities of modern business, erratic market forces accompanied by unpredictable economic uncertainties, the risks are now greater than the businesses our parents or grandparents may have run in the past. Nowadays we need to have an iron grip on our financial and operational positions, owing to the pace of modern life, and the sheer accessibility and volume of information available. Additionally, we need to be able to identify difficult trading periods well in advance, and ahead of our competitors, proactively making solid business decisions that we are truly confident about to maximise the opportunities and minimise the risks. If we lack confidence, instinctively, human nature will hold us back, or keep us retreating from making those difficult decisions in the first place; which invariably are the pro-active actions we should be taking to achieve and maintain success.

Accountant and Bank Manager aside, what other tools do we need?

My coaching processes always start by conducting a comprehensive financial and operational review. It can be painful, but you have to know the position of the company, why delude yourself? Invariably the review opens up immediate challenges and opportunities, which help to lay the foundations for a successful and profitable business over the long term. Without identifying the key financial and operational drivers within the business, at the start, and laying the foundations it would be like ‘the blind leading the blind’ and a sure-fire route to commercial suicide. If you have the support of an accountant on one arm and the bank manager on the other, the following information is a pre-requisite for success…

  • A 3-year business plan identifying how you are going to profitably grow the business over the short to medium term by identifying the financial requirements, team numbers and training, capital expenditure investments and marketing budgets and plans.
  • Monthly profit and loss to ensure you are actually making money, or are at least monitoring your seasonal fluctuations year-on-year and managing your resources accordingly.
  • Budget against actual forecast: So you fully understand the day-to-day overheads and margins of the business and reconcile them on a monthly basis for accountability to detect anomalies that can be acted upon immediately.
  • Cash-flow forecasts: Enabling you to maintain a finger on the financial pulse of the business and to ensure creditors and debtors are managed at all times.
  • Detailed costing templates for all goods and services that reflect the businesses true margin and profitability aspirations and covering all overheads.
  • A comprehensive quotation system to ensure you do not sell your goods and services too cheaply to maximise profitability

A little disconcerting you may think

How many of us have been trained by our accountants, or utilise sophisticated accounts software packages that provide some or all of the above information in a digital form, but in reality we are none the wiser. We blindly enter the figures because we know this is what we are supposed to do, but we really have little or no understanding of how to read or affect them. This actually further adds to the confusion, and doesn’t fill us with the confidence it is supposed to do.

Just because you are not proficient with figures doesn’t automatically make you a bad business person; it just means that you shine in other areas of the business. We may be great marketers, strategists or sales people, and the figures are an alien concept to us. However…

Something all of us want

Every business owner alive wants to know the current status of their business; they want to be able to understand the ramifications of their decisions and budget for those decisions accordingly. They want to be able to predict their position in a month, six months or even a year. They want to achieve the results the business plan has identified in three years. However, business owners also want to simplify the process, and feel confident about their future. They want to lead, excel and create that future success, and they don’t want to blindly miss the potential chasms in front of them. In reality, we all set out towards an end goal. It may have been slightly cloudy, but it exists in some form within all of us.

Taking absolute control of your business

Accountants and bank managers aside, business owners need to take and maintain full control of every aspect of their business, and have the tools available to use, and be able to interpret the information the tools provide us with, in whatever format they need to be presented – the latter being the key point to this whole article.

As a business coach, the most important part of my coaching is helping business owners to achieve this level of control. Having a grasp of the figures may not be the most exciting part of running a business, but it is the grounding every business owner needs to achieve success. It is also extremely empowering for the business!

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