Why Bother with a Financial Plan?

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by Mike Iverson, Numbers Coach

Any competent financial executive will say “a business needs a sound financial plan” to tie the numbers to a business owner’s strategy. But what does that really mean?

Yes, you need a plan. But how you develop the plan will depend on your business objectives. Question #1 should be “Why are you in business?” Your answer may be:

  • “I want a good, stable lifestyle-maintaining business.”
  • “I want to increase my net worth so I can retire early and enjoy the good life.”
  • “I’ll start a ground-breaking business, grow it quickly and sell it so I can move on to the next adventure. I don’t want to get bored!”
  • “I want to create a legacy for my family.”

You might hear yourself in one of the answers above, or maybe you have a unique reason for starting a business. No matter – there are common elements to be explored as you develop your plan, such as sales, marketing, operations, finance, competitors, which products and services to offer, etc.

Create a Plan

I know it sounds like a lot of work. But keep in mind: if you are in business to create a nice income/lifestyle with moderate growth, then you may choose to keep it simple and short. Your financial plan may be just the number of hours at a specified hourly rate that you need to work in order to achieve your goal. Why spend hours on a 40-page plan when two to three pages is enough?

On the other hand, if you plan to grow your business beyond a few people in order to create a net worth exit opportunity or a significant enough business to leave as a legacy to your children, then a more detailed comprehensive plan will be needed. This means the plan should include all of the elements noted above, with enough market data to support your business premise. You’ll need details to specify what exactly it will take to grow your business. Details such as:

  • Monthly financial projections for 12-24 months
  • Annual projections for 3-5 years
  • Assumptions outlined that support projected sales and expenses (pricing, number of clients, new products, marketing initiatives, comparative plans, product costs and more)
  • “What If” scenarios to illustrate the potential ups and downs.

It is easy to think of the plan as the tool. And it is – a well developed plan helps you manage to your expectations. It provides business measures to keep things on track. (Ever hear the old saying, “If you don’t measure it you can’t manage it?”) But often overlooked is the value gained in going through the planning process, whether it’s a simple two page plan or a full-blown book with multiple chapters. The business idea will be refined and honed, and valuable insights achieved.

Ready to Execute

Once the planning process is complete and documented, with a set of financial projections that tie to your vision and help you see what success looks like and what it might cost you in dollars to do it – you’ll be ready to execute your idea! (Don’t forget, however, the plan is dynamic, meaning it will need updating and modifying on a regular basis!)

In the following case study I will illustrate two key elements I have found among successful entrepreneurs who have implemented a planning process:

  1. They start with the end in mind.
  2. Execution, execution, execution…..

Case Study: The Financial Operations Network

I have been fortunate to have been involved with the start-up and launch of a unique business model in my work with a successful serial entrepreneur – Phil Binkow. I have tremendous respect for Phil and his ability to see opportunities and make them happen.

About 10 years ago, Phil had the vision of building a content rich website for financial professionals, specifically in the area of Accounts Payable. Phil produced one of the best business and financial plans that I have seen. He researched his target audience, asking questions about price, content, and their day-to-day challenges. He carefully studied competitors and the industry to find any gaps. He articulated where he felt the business could go and even reached out to competitors as partners.

After reading the plan, I was convinced that here was a business with solid recurring revenue in a niche no one else was serving. We built a comprehensive financial projection which included assumptions for pricing, ramp up of memberships sold, and types of ancillary services and products to sell. The model also helped us understand the potential capital needed to develop and launch the initial site and a future complimentary resource site.

What Determines Success or Failure?

Phil implemented the two key elements in the planning process that I believe can define the difference between success and failure:

  1. He started with the end in mind.
    In other words, he actually has aligned himself with competitors that could ultimately become potential buyers of the Company. Phil knew intuitively that it is better not to go up against the larger, well financed competitors in the industry, but instead, nibble at their Achilles heel with a product or service that they will not pay attention to until its too late. This makes a company a prime acquisition target. He has a game plan for how he would like to exit.
  2. Execution, execution, execution.
    Phil knew his plan had to have the right premise: to solve someone’s problem. But without a solid execution on the part of him and the management team the business would not have taken off. It would still be at the gate announcing its intention to depart.

Now, fast forward to today. Phil successfully exited that business by selling to a strategic buyer and he and his team have started several new business adventures since!

Need some guidance on financial planning for your business? Check out our Financial Planning Tool Kit

Business Growth… Is Bigger Better?

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This is often a question that I ponder.  The tendency is to say but of course if you don’t grow, then you wither and die as an organization.  Some of the conventional wisdom says that size and growth matter.  However, is it really about being bigger or is it really about being great at what you do?

I read a book titled “Small Giants: Companies that Choose to be Great Instead of Big” by Bo Burlingame.  I really liked many of the concepts that emerged from his research on how companies with strong brands such as Clif Bar and Anchor Brewing became great companies in their industries.  Instead their focus was on becoming great companies delivering their products to their customers and creating a work environment where their employees thrive.

I challenge you to think outside the box and determine what your path should be—getting bigger or being the best? Knowing your business “why” will shape how you answer this question.

Here’s to thinking outside the box about what growth means to you!

Mike

Want To Improve Your Sales? Do This One Thing

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I recently ran across an article discussing how some companies are asking one simple question to get an understanding on whether a customer would recommend your product or service.  Referred to as the “net promoter score “, the question asked is the following.

On a scale of 0 to 10 how likely is it that you would recommend us to your friends or colleagues?

High responses in the 9 to 10 range are promoters.  Low responses from 0 to 6 are detractors and responses between 7 to 8 are somewhat satisfied.  This concept was embraced by GE Healthcare who at the time was doing traditional customer satisfaction surveys that only gave vague results.

GE went so far as to not only compile a score but also tie it to a bonus.  However, there are critics of this approach too.  While it is a simple measure some say its simplicity may point people in the wrong direction. My thought is we all need to start somewhere and having an actual metric gets you started thinking about how to make customers your best source of referrals.  Understanding why detractors answered the way that they did can only give you helpful information to become better at what you do.  The discussion with your customers on this question can be of great value that can accelerate your company’s growth.

The 7 P’s of Evergreen Companies

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I read an article recently by Bo Burlingham an INC magazine writer, about what he described as an evergreen company.  The definition is described as a “private, profitable, market- leading businesses that are designed to remain unsold and independent for a long, long time.”   It was interesting to read about entrepreneurs who had decided that it was not about how high the could get their valuation, how much money they raised, or how big they would grow, but rather looking for a meaningful experience building their companies.

Here are seven tips on building an evergreen company.

  • Purpose

Passion driven organization from its vision/mission.  It’s not about the money.

  • Perseverance

The resiliency to keep pushing forward and overcome obstacles

  • People First

Have an engaged workforce aligned with its culture.  Team members who are taken care of will in turn take care of your customers, suppliers, community, and stockholders

  • Private

Taking advantage of the long-term view as a private enterprise

  • Profit

Success is measured and that includes the bottom line

  • Paced Growth

The discipline to focus on growth that is steady and consistent.  Every company has a speed limit to profitable growth

  • Pragmatic Innovation

Embrace the mantra of continuous improvement and be willing to take calculated risks that don’t jeopardize the company

Here’s to knowing how you can drive your evergreen company to the results that you want!

Mike

What Drives Innovation?

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We hear a lot about how companies need to innovate to stay relevant in their market.  Innovation can have a different meaning for each of us, however, it is helpful to understand what is the characteristics that can cause a leader to have the “innovation gene”.  Researchers at the Harvard Business School (Gregersen and Christensen) surveyed over 3,000 executives who had not started a business vs. responses from over 500 people who had created thriving companies.

What are the characteristics of an innovator?

  • They ask a lot of questions and challenge the status quo
  • Spend at least 15 minutes writing down what questions would challenge the current state of the company
  • Study other people and cultures.  Live in another country for a period.
  • Be an observer.  Watching how people do their activities, however mundane can inspire ideas to improve the activity.
  • They network well to connect themselves to resources that will test their ideas and get feedback.

What’s your innovation DNA?  While some of it is hard wired in people and others must work at it intentionally.  However, knowing what concepts could help you down this road can be half the battle to win the war of innovation for your company.

Here’s to innovating!

Mike

Planning

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Have you heard the quote “work on the business vs working in the business?”  As leaders in our businesses and communities, some self-reflection is important if we are to gain wisdom from our experiences.  A research study done by Giada Di Stefano, Francesca Gino, Gary Pisano, and Bradley Staats, indicated that employees who spent 15 minutes at the end of each day reflecting about their lessons learned experiences did 23% better than those who didn’t do this self-reflection exercise.

Many leaders at driven individuals who are focused on accomplishment and making results happen.  Taking time out of their day to do self-reflection seems too much given their busy schedule.  Other excuses include they don’t see the return on their time invested or they don’t want to slow down.

I recommend self-reflection because it causes you to pause and think about what was good and what could be improved during your day.  I use a journal to help me document not just my daily gratitude but also what went well and what did not go well.  Here are some questions to ask that could help you in your journey on self-reflection.

  • What are you avoiding?
  • Are you helping someone achieve their objectives?
  • Are you a hindrance or a help with someone you are working with or for?
  • How could you be more effective in meetings?

Asking these or other questions will help you move forward in a more positive path on your leadership journey.

Mike

Company Growth: Know Your Speed Limit

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Have you heard the saying “you’re either growing or dying?” 

For me, growth is in the eye of the beholder.  What I mean by that is growth means different things to different people and larger is not necessarily better.  The seduction of “bigger is better” exists because you can scale, get better pricing from vendors, and have a wider impact on your market.

However, as Basecamp founder Jason Fried explains in his article “The Zen Approach to Growth,” size may be important but it should be a by-product of meeting the mission of your company.  Getting bigger means more personnel to manage, larger customer base to manage, and so on.  Employees become a number vs. a name and family.

A business owner should think about why they want to grow and how it will impact the culture.  Being intentional about your growth is important.  Careful, methodical growth where the rate of growth is at least within the company’s affordable growth rate, which I often referred to as your “speed limit.”  Every company has a speed limit, and going excessively fast has its consequences.  Know your limit and why growth is important to you.

Here’s to knowing your speed limit and staying within it.

Mike

Building Your Financial Plan

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Any competent financial executive will say “a business needs a sound financial plan” to tie the numbers to a business owner’s strategy. But what does that really mean? It’s time to demystify this statement.

  • Define your objective.  Why do you run your business?  Your reason could be any of the following or something else, but it’s important to start with the end in mind:
    •    “I want a good, stable life style maintaining business.”
    •     “I want to increase my net worth so I can retire early and enjoy the good life.”
    •     “I’ll start a ground breaking business, grow it quickly and sell it so I can move on to the next adventure. I don’t want to get bored!”
    •     “I want to create a legacy for my family.”
  • Create a business plan.
    • Now that you have your objective in mind, the plan is simply the day-to-day activities that will help you achieve it.  This can be as simple as determining how many new clients you will need at X dollars per month, or more detailed with specific key performance indicators for all areas of the business (finance, operations, sales and marketing, HR, etc.)
    • It is easy to think of the plan as the tool. And it is – a well developed plan helps you manage to your expectations. It provides business measures to keep things on track. (And as we all know, if you don’t measure it you can’t manage it.)  But often overlooked is the value gained in going through the planning process – whether it’s a simple two-page plan or a full-blown book with multiple chapters. The business idea will be refined and honed, and valuable insights achieved during planning.
  • Execute.
    • Now it’s time to put the plan into action.  Without this step, a plan is just a piece of paper.  Start acting on your plan, find someone to keep you accountable to sticking with it, and celebrate your progress along the way.

Let me know how I can help you build your blueprint.  

Here’s to planning a successful year!   

Mike

How to be Successful the Second Time Around

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I recently read an article about a study conducted on over 65,000 Swedish earlier stage start-up companies and their owners who successfully exited one company and moved on to their next company.  It pointed out that the second time around for the entrepreneur was not always a success.     Most business owners after they exit from their business seem ready soon after to start another venture.  This includes business owners that transition to the buyer company, but find out that they can’t work for anyone else anymore.

The second business often under-performs compared to the first one.  Why?  There is no one reason why the same skills and leadership that got them a first successful company exit does not work the second time around.     In some cases, the entrepreneur fails to understand the significance of timing and those “make-or-break” moments where their intuition helped lead the first company to its success.  They sometimes forget or underestimate how much effort it takes and the chance events that got their first company the results needed to succeed.

So what are the ingredients for a happy exit?  It depends on the person; however, some common strategies included: The business owner visualizes what life looks like after exit.  They don’t wait for the exit to happen and then decide, rather they are proactive about it before exiting. Test driving the next venture prior to exiting the first one Setting clear goals, deadlines, and amount of capital that will be committed These are just a few of the ideas that can help a business owner avoid moving onto a second or third business venture that ends up disappointing.

Here’s to your next venture! Mike

Numbers Coach Eases the Pain of Financial Management for Medical Practice

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The Company

Pain Care, LLC (formerly Georgia Pain and Spine Care) is a leading pain management medical services firm that provides comprehensive solutions to help restore each patient to their original lifestyle. The company uses progressive approaches to pain management with education, counseling, and minimally invasive procedures. Their mission is to relieve pain, increase productivity, and improve the quality of life for its patients using technologically advanced treatment regimens through its various metro Atlanta offices.

Situation

In 2020, the Pain Care team wanted to enhance their financial management and reporting capabilities. They wanted to create a platform to communicate the company’s key performance indicators (“KPI”) and help educate its key team members on what drives its company’s financial results. In addition, the Pain Care team wanted a “road map” that could guide them as they made financial decisions impacting strategies for growth.

Solution:  Numbers Coach Leadership and Numbers Navigator™ Services

The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing Pain Care’s performance metrics. NC developed a financial scorecard to focus on the financial measurements that drive company profits and cash flow critical to sustained profitable growth. The scorecard offers an “at a glance” view of results. NC developed a financial model from its proprietary software, the Numbers Navigator™ . The software provides a road map for the Pain Care team to see where they are headed with profits and cash flow. The software’s rolling financial forecast provides the Pain Care team with a tool to make critical decisions “on the go” to achieve their desired results.

Results

NC pulled together financial and non-financial data to complete a scorecard and financial model. Each month NC meets with the Pain Care team to methodically review results and provide the input and analysis from NC’s Numbers Navigator™ financial software. From the monthly financial coaching meetings, the Pain Care team can take actions on activities that improve the company’s bottom line results.

For more information on Pain Care, LLC visit www.georgiapaincare.com

To learn more about the Numbers Coach financial leadership services, click here

“Mike has become an important part of our team.  His understanding of financial processes, cash flow, and approach to educating us on our results gives our team the right tools to help us understand how to navigate our finances successfully and stay focused on our financial goals.”  

Dr. Charles Brownlow, Founder / Medical Director

Every Business Needs a Plan. . . But it Doesn’t Need to Be Long

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When a business owner wants to attract a business partner or hopes to raise investment capital, he or she needs a way to show where the company is headed. A business plan is the right tool for the job.

Many entrepreneurs don’t have business plans because they are unsure about how to begin, and the process seems terribly time-intensive. But, a business plan doesn’t have to be elaborate. In fact, the trend is toward something simple.

Have you heard of a one-page business plan? It is certainly a far cry from a traditional business plan that often runs 15 to 50 pages. A one-page plan is specifically requested by some investors, because they find it difficult to read all of the investment proposals that come to them.

The One-Page Business Plan

Proponents of a one-page plan believe there’s a great deal to be said for brevity. Most investors have neither the time nor the inclination to read more than the absolute essentials.

For instance, a one-page business plan is likely to describe:

  • The customer needs that your business addresses
  • Your products or services
  • Your principal customers
  • Your chief competitors
  • Your competitive edge
  • How you make money
  • Your management team
  • A financial summary
  • Your funding request

If you provide all the information on the list above, it’s likely enough for the typical investor. So, let’s focus on how to get all of the facts onto a single page.

For starters, don’t worry about writing complete sentences, and don’t spend time trying to make your plan look stylish. Commit to simplicity. Waste neither words nor space. For example:

Customer Need that the Business Addresses: LED lighting solutions for a variety of manufacturing applications

Products Sold: LED assemblies customized to a manufacturer’s specifications

Principal Customers: Warning Lights of North Georgia — 13% of annual sales; no other customer is > 5% of sales

Once you have compiled all of the information, consider hiring a professional to improve the presentation. A talented graphic designer can turn your information into a much more attractive page in a couple of hours by using business-appropriate spacing, fonts and icons that provide some visual interest.

As an alternative, software packages are available that provide templates for one-page business plans. Just answer the questions at the interactive prompts. It’s an easy, albeit more expensive, way to get started.

With a 20-year record of success, The One Page Business Plan Company is a testament to the power of the single-page approach. Its software solutions are cloud-based. If your business is ready for something more than the bare essentials approach, its one-page templates can help you develop:

  • A vision for your business success
  • A mission statement
  • Objectives
  • Strategies
  • Action plans

If you would like to get an example of a one page business plan that Trillium has used for clients feel free to send us an email request and we will send it out to you in a Word template form.

Why a Slow Economy Doesn’t Have to Mean Dire Straits for Your Business

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Is the slowing economy adversely affecting Atlanta’s businesses, or is it a great time to be in business?

Well that depends mostly on your recent revenues. But even if those are in reverse, a slowing economy can be a great time to take advantage of some opportunities and position your business to come out of the gate at full speed when the economy takes an upswing.

We wanted to hear what local professionals in finance and business had to say about the current state of affairs. CFO service provider Mike Iverson and Vistage Chair Tim Fulton had some good tips for bad times.

Cash is King

The first step to understanding how to make sure your glass is half full is to assess your financial situation and understand exactly how much cash and credit you have. Even if cash flow is good, “Now would be a good time to go the bank,” says Mike Iverson, CPA and Principal of Trillium Financial, “before the economy gets worse or your company financials get worse. Go to the bank and make clear why you want a line of credit and what you will use it for.” It’s important to be proactive when it comes to having the cash stores ready. If you wait until you need it, your statements probably won’t look as good, and the bank may decline a loan or line of credit. Planning ahead is always a good thing. “The key to survival in an economic downturn is to out perform the market, and accumulate cash”, says Tim Fulton, a Vistage International Group Chair which works with over 14,000 chief executives in 16 countries.

Another aspect of understanding your capital position is modeling. How long can your business last with a certain amount of decline? What will you do to make sure you can weather the storm and start growing again? Imagine the various scenarios – even the truly ugly ones – and devise solutions before they come to fruition. You’ll be able to think more clearly in the face of adversity if you have a battle plan and, again, a line of credit to back you up. This doesn’t mean that you have to focus on the worst case scenario, just plan for it, then focus on your everyday business.

Modeling the tough situations is especially important if you are in a cyclical business; for example, the automotive industry. When the economy hits the skids, the average car dealership will probably see sales decline rapidly. Managers must have enough cash reserves to ride out the storm, and to pay for overhead and inventory so they can still be in business a year from now.

If you are a manufacturer, or a company that manages a lot of inventory, be mindful of your production capacity. You don’t want to continue to run at full capacity and end up with an overstock. Go to your clients and continually measure what they anticipate ordering from you in the next two to three months. For production purposes, you might have to scale back so the inventory on hand can be used, and not end up obsolete. On the positive side, manufacturers are usually the first to see orders are picking up. They’re not necessarily the canary in the mine shaft, but these businesses tend to provide a leading indicator.

The Positives of Slower Times

Once your cash situation is well-positioned, the glass is definitely half full. Now is the perfect time to expand your business through capital investments such as acquiring a struggling competitor. You can often take advantage of businesses being sold at fire-sale prices.

“When the economy bottoms out, there will be an abundance of great investment opportunities,” says Fulton. “The business owner with cash will be in a strong position to take advantage of these opportunities.”

Companies with cash can also get the upper hand over competitors by investing in the introduction of new products and in new technology that other business can’t afford. “If you can do any of these things”, says Iverson, “you’ll be in a different place than your competitors because you will be nine to twelve months ahead of them.  You will have something to offer customers that your competitors cannot.”

Companies who differentiate themselves in this way will be growing when everyone else is declining. Constantly look at opportunities to grow with products and services that will serve others struggling with hard economic times and continue to help them through good economic times,” says Iverson.

Another way to grow through a slowing economy is to ramp up marketing. While other companies cut their marketing budgets, Fulton recommends against this instinct. “Be very, very focused in your marketing strategies. This is not a time to be spending a lot of money on broad branding efforts. It is a time to be laser-focused on acquiring new clients and retaining profitable existing clients,” he says.

Iverson agrees. “Marketing is the last place you should cut back,” he says. “Marketing initiatives are priming the pump to create your sales engine. If you cut back on that, you cut back on future sales and opportunities. If everyone else cuts back on marketing, you will stand out even more, possibly turning that half-full cup to overflowing.”