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 Increase Sales?

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There is a whole lot of information on the web and in print on what to do to get great sales results.  Part of the solution is to know what are the statistics behind some sales activities that could help influence how you approach your activities.

  • Most emails get opened at the end of a day.  According to a study done by MailChimp they found the hours between 2pm and 5pm to have the most opens.
  • Tuesday is tending to be the day of the week with the best open rate.
  • A subject line is one of the keys to whether a person opens an email.  A study shows about 35% of people will make their decision to open an email based on a quick read of the email’s subject line.
  • Key words in your subject line are important for the open rate.  Words such as “learn”, “new”, “alert” tend to grab their attention.
  • According to a recent study about 57% of recipients will mark an email as spam, and this is even when the person knows the sender too.  If the subject line and material don’t resonate, they will throw it to spam because they don’t have the time to linger over matters that don’t help them move forward.
  • For outbound cold calling only about 2% result in an appointment.  This resonates with me because of my experience with clients using this technique.  It can be very effective but requires a large volume of calls to drive results.
  • On average a study showed that sales people will spend about 25 hours each month leaving voice mails.  Does leaving a voice mail work?  It may in some cases, but from my experience it does not result in calls to action to return the call.
  • Most voice mails will not be returned.  A study done by RingLead indicates that 80% of call go to voice mail and 90% of the first-time voice mails will go unanswered.  Some say to make it effective, only leave a voice mail that is between 5 to 15 seconds long.
  • The best time to call is generally between 6:30am – 8am and 4:30pm and 6:30pm.  People are usually checking messages and catching up at these times of day.
  • A recent study found that 77% of B-to-B buyers never talk to a sales person without independent research done before making contact.  It’s important to maintain the right social media presence and website content that will provide the information needed to the buyer.
  • Another study on B-to-B business found that 84% of buyers in this market started their buying decision with a referral.  One of the most powerful sales techniques is “word of mouth” referrals from a trusted friend or advisor.  How can your company position itself with influencers in your space as the “go to” source for your product or service?
  • Social media usage for business has found sales people are 79% more likely to hit their goals.  The key is using it for business communication with a strong message for recipient.

Give these statistics some thought on how you can utilize it with the sales techniques most appropriate for your company.

Here’s to increasing our sales!

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 an Evergreen Company

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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 they 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.

If that vision appeals to you, 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 is the One Best Yardstick to Measure your Business Success?

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Mike Iverson’s client had it all figured out. He knew exactly how well his business was doing every month, without researching complicated data or paying an expensive consultant. He just looked at his phone bill. If the number of outbound calls was up, he could bet that his revenues for that month would be up, too.

A reckless, haphazard guess? Just the opposite. Iverson’s client had found a simple metric that he could track every month and immediately gauge the health of his business.

The concept of a simple metric as a forecaster of financial health belongs to Norm Brodsky, a successful serial entrepreneur and writer for Inc. magazine. The idea is for every company to find that one magic metric – the connection between a routine business function and the positive growth of a company.

“I think every business has it,” says Mike Iverson, Numbers Coach. “Every small business can put a finger on a certain key number that can tell you how you will end up that month.”

The trick, of course, is uncovering exactly which numbers have that relationship in your business. For example, if call volume goes up and sales go down, you’ve got the wrong metric. It is important to track as many numbers as possible in the beginning, because it may take two years (or more) to find the leading indicator. Also, recommends Iverson, track the numbers by hand. The process of writing the numbers down with a pencil and paper will help you realize the connections.

Here are seven important metrics for any business. Track them for 3 months and see which one gives the greatest transparency to the rest of your business:

  1. The Trailing 12-Month Sales Average: By monitoring – and graphing – sales from the 12 months prior, you’ll get a visual of the progress of sales, while taking seasonal issues out. If it’s July 2025, look at July 2024 through June 2025. Graph each month’s sales and see where the highs and lows were, and what the average was. If that 12 month average is trending up, it’s good. If the graph line is flat or declining something is causing sales not to perform.“If you look at just sales numbers month to month, you won’t see it,” says Iverson. “This is a visual metric: you want to see that 12-month trailing graph trending up.”
  2. Operating Profit Percentage: This shows the extent to which a company is making a profit on standard operations. When looking for indicating factors, ask, ‘Is this percent holding steady, increasing or decreasing?’  You can also examine this on a trailing 12-month average.
  3. Accounts Receivables Cash Conversion Cycle: If you extend credit to customers, track how long it takes to collect cash from the time the bill is sent. What is your cash conversion cycle (or DSO – Days Sales Outstanding)? Be careful about the terms extended to your customers; you have set them for a specific reason. If customers go beyond those time limits, you’ll feel the pinch.
  4. Days Inventory Outstanding (DIO): In theory, you should keep the least amount of inventory on hand as possible. In a perfect scenario, you would get the order in just in time to have it manufactured and sent out; the longer inventory sits unsold the more of a drain it is on your cash.
  5. Disbursement Cycle: These are the terms you get from your vendors. The longer you can hold on to your money and the faster you get it from your customers, the better.
  6. Working Capital as a Percent of Your Revenue: This is an important financial set of measures to look at because it is often overlooked by business owners, says Iverson. “They know to look at the income statement. But if all that operating profit is getting absorbed into working capital, then there won’t be enough cash flow to grow the business,” he says.Receivables and inventory are investments.  (And in the same way vendors have an investment in you.) You’ll want to invest as little as possible of your revenue in working capital. Turn your receivables to cash, your inventory into billing, and hold on as long as you can to your money. Look at the number of days net working capital is invested every month (or cents on the dollar of what’s invested). If you don’t have enough cash flow to cover what you’ve got invested, you’ve got a problem.
  7. Return on Capital Employed (ROCE ) Percent: According to FinanceScholar.com, ROCE measures the efficiency and profitability of a company’s capital investments. For example, capital assets such as trucks and computers should help make the business more efficient, cut down on costs and realize greater profits.  The ROCE percentage also indicates whether the company is earning sufficient revenues and profits in order to make the best use of its capital assets. The higher the percentage the better.

Tracking the numbers involved with these seven metrics over a period of time will give you an idea of which is the leading indicator for your business.

“It seems like the concept would be complex, something more to it. But really there’s not. If you break it down and keep it simple, the metric can give a business owner an easier way to digest information and act,” says Iverson.

Start measuring today so you can figure out what actions to take in order to achieve your financial goals.   The Numbers Coach can help; just contact us at (404) 353-2148 or mike@numberscoach.net.

Numbers Coach Crafts Financial Models for Brewing Company

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COMPANY
In 1993, Red Brick Brewing (RBB) started as one of the first craft brewers in Atlanta.  The Red Brick team is dedicated to providing the consumer with world class Southern beers and ales.  The consumer gets a consistently great-tasting beer from unique blends of hops and other ingredients.  The RBB team of dedicated people are passionate about brewing the best-tasting Southern beer.  (Red Brick Brewing rebranded back to their original name of Atlanta Brewing Company in 2018.)

SITUATION
In 2012, the Red Brick team was transitioning its financial management and reporting with the goal of creating a financial model that would communicate the company’s key performance indicators (KPI) and drivers of its financial results to management and investors.  However, the team quickly found that it was challenging to accomplish this goal on their own.

SOLUTION: The Numbers Coach Financial Leadership Services
The Numbers Coach (“NC”) financial leadership services were an ideal fit for developing RBB’s customized financial model and metrics.  NC’s,Mike Iverson, created the model and also reviewed the company’s financial results each month to help the team identify areas of concern or improvement.

RESULTS
NC effectively pulled together the required financial and non-financial data to complete a customized financial model, providing insights for the team to do product and cash flow planning.  The model was developed with “what if” scenario planning capability.   This allows the team to see how changes to key metrics drive the financial results of the business.  The model also has the option to provide a rolling forecast for the team to get visibility on how they might finish the year given actual results to date.

According to RBB investor (and founder of North Highland Global Consulting) Dave Peterson:  “Mike at the Numbers Coach jumped in and set up a customized financial model that matched Red Brick’s business and key metrics.  His solid understanding of financial reporting and analysis provided our company with the right tools for financial planning.  We would highly recommend the Numbers Coach financial leadership services.”

For more information on Red Brick Brewing Company/Atlanta Brewing Company, visit https://atlantabrewing.com.

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

“Mike jumped in and set up a customized financial model that matched our business and key metrics.  His solid understanding of financial reporting and analysis provided our company with the right tool for financial planning.”  

Dave Peterson, Red Brick investor & founder of North Highland Global Consulting

The Numbers Coach Helps Secure Interim Financing for Practice Expansion

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SITUATION

In 2004, Pain Consultants of Atlanta, LLC (“PCA”), a leading pain management medical services firm, was in the process of negotiating a buy-out from their parent company. PCA saw an opportunity to grow by opening a new clinic in Atlanta, Georgia, but was unsure about expanding prior to the completion of their buy-out.  The management team determined that they needed to secure interim financing in order to move forward with the expansion.

SOLUTION: The Numbers Coach Leadership Services

PCA engaged the Numbers Coach (“NC”) to assist them in securing interim financing that would allow the company to continue on their growth path without requiring a large capital infusion.  They also needed to structure the financing in a manner that conserved cash flow during a crucial buy-out transition period.

RESULTS

NC helped PCA to obtain approximately $300,000 of short-term lease/purchase financing from several different financial partners.  This enabled PCA to continue its expansion during the interim period before the actual buy-out occurred.

Numbers Coach Establishes Financial Infrastructure for Start-Up

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SITUATION

BodyBlocks Nutrition Systems began their business launch in 2003.  The Founders were excited about their plans and the products that they would offer.  The Company received seed capital from friends and family to take the business from an idea on paper to a proof-of-concept.  The idea passed the feasibility study, and they were ready to raise the necessary capital to launch the business.

Body Blocks realized they needed a financial consultant who could take them from an idea to launch, and on to the next level as an emerging growth business. What did they need?

  • A comprehensive financial model designed to match their business strategy
  • Capital
  • Basic Financial Reporting
  • Administrative Infrastructure (financial, risk management, and human resource functions)

SOLUTION: Numbers Coach Financial Services

At the end of 2003, BodyBlocks hired the Numbers Coach “NC”) to help them in their financial leadership.  They did not have a need for a full-time CFO, but did need the financial expertise.  NC immediately designed a financial model so the company could begin the process of telling its “story” to potential investors, and raise the necessary capital to launch its products.  Within a few weeks the model was complete and ready for investor meetings.

At the same time NC began establishing infrastructure for the company finance and accounting functions.  A foundation was created so that costs were variable and fit the specific needs of an emerging growth company in the early stages of its evolution.  NC also advised Body Blocks on how to secure the right level of business insurance to protect company assets.

NC managed and designed the human resource functions, bringing together key HR resources to develop critical documents, formal personnel files, and policies.  Payroll solutions were implemented to ensure all taxes were reported in a timely manner.

Numbers Coach Advises & Establishes Financial Infrastructure for Pain Management Company Spun-Off from Parent Company

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SITUATION

Pain Consultants of Atlanta, LLC (“PCA”) is one of the leading pain management medical services firms in Georgia. In 2004 a decision was made by the owners to spin off PCA from its parent company.  PCA’s management team recognized the need for financial leadership during this time to help them navigate through the spin off and become a successful stand-alone company.

SOLUTION: Numbers Coach Financial Leadership Services

PCA engaged the Numbers Coach (“NC”) to provide recurring financial leadership services that would assist in the transition to an independent company.  NC developed a detailed plan with specific deliverables to meet the transition deadlines.

RESULTS

PCA has successfully established several key self-sustaining business components:

  • Established a billing department and acquired financing for the billing system and computer hardware necessary for successful in-house financial operations.  An internal billing and collections department allows for greater control and is designed for increased reimbursements.
  • Outsourced accounting functions to a bookkeeping firm, allowing the company to remain focused on their core business, instead of adding fixed operational overhead.  Outsourcing also provided a scalable accounting system that PCA can use during its growth phases.
  • Created and implemented a detailed transition plan to migrate PCA’s employee benefit plans from the parent company in a manner that protected the employee’s current level of benefits.

Health Check: Is Your Overhead Growing Faster than Your Revenue?

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As a Numbers Coach, we consult with many growing companies.  One unhealthy trend we often encounter is a company whose revenue growth is not keeping pace with the growth of its fixed overhead. This situation is manageable in the short term, but problematic in the long run.

In today’s economic climate, many businesses find it difficult to increase prices or find new sources of revenue. For those businesses, revenues are stagnant or perhaps even declining. At the same time, employee salaries and benefits, rent and utilities are all trending higher. So, what do do if you find your business facing this predicament?

Let’s take a look at two possible solutions for this challenge.

Possible solution #1: Lowering prices

Given stagnant or declining revenues, lowering prices to grab market share is one possible strategy. To increase revenues under this strategy, you need to increase the volume of products/services sold. This may be feasible, especially in mature industries where a fairly uniform set of product/service features makes differentiation difficult to achieve. In these circumstances, price can be an important differentiator.

  • Possible pitfalls:The tricky part is assuring that a price decrease results in more volume and, therefore, increased revenues. By offering lower prices, you bet that a reduced profit margin per sale will be more than offset by a volume increase. If you can’t accomplish that with certainty, you may cause a potential disaster – by lowering your gross profit to the point where it still doesn’t cover your overhead!

  • Our advice: Carefully analyze the financial ramifications of a proposed price change before implementing it.

Possible solution #2: Lowering Salaries and Benefits as a Fixed Expense

For many businesses, particularly those in service-oriented industries, employee-related expenses are the biggest part of overhead.   There are instances where cuts to employee expenses make a great deal of sense.

For example, consider a local plumbing contractor who has significantly less work than he had three years ago. Prospects for next year aren’t good, because construction starts here in the Atlanta area are still suffering. The contractor has to consider how to reduce his overhead, since revenue growth will be marginal at best.

  • Possible pitfalls: In theory, employee-related expenses are a logical place to look when overhead needs to be reduced. However, most business owners are very reluctant to make cutbacks in this area – with good reason. Cutting salaries produces immediate financial benefits, but those benefits may be offset by a loss of employee trust and loyalty. By following the advice below, it is possible to reduce overhead while retaining loyal employees.

  • Our advice: When there isn’t enough work to keep existing staff busy on a full-time basis, an employer has several options. First, he may choose to cut back the hours of all employees. Our plumbing contractor put his non-administrative staff on 30-hour work weeks. All the employees share the pain equally, but they still have jobs and they seem grateful for that. Another option is to identify employees who are under-performing and make necessary cuts. Every business has high achievers that need to be retained and rewarded. That is difficult to do in a poor economic environment, especially when other employees aren’t achieving nearly as much. For our contractor, eliminating a single position meant keeping five high achievers happy and motivated. From a long-term perspective, it was the right business move.

So when your fixed overhead expense growth outpaces your revenue growth, look to alternative pricing strategies or reducing selected overhead expenses to set you back on track. But remember: rational analysis trumps emotion when it comes to financial decision-making.

If you need an objective opinion about your options, just give us a call at (404) 370-6147 or send us an email, and we are happy to advise.

One Crazy Idea Can Revolutionize Your Business

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by David Shavzin

“We are too busy mopping the floor to turn off the faucet.”
Anonymous

Trying new things is always a good idea. We get stuck in ruts as individuals and as companies. “We have always done it this way, so why change?”   It can be hard to get out from under the day-to-day fires and step back to THINK.

Even in the best of times, we need to keep reinventing how we do things. But certainly during these challenging times! Even if the years since 2009 have been an economic anomaly, they have clearly changed the business environment, including every industry and every aspect of the economy.

You’ve likely heard the definition of insanity (attributed to various people, including Albert Einstein): “Insanity is doing the same thing over and over, expecting different results.” If you have not been hitting the sales targets you had set, are you going to keep doing what you have been doing? What are you going to do to ensure a successful year? What are your customers doing differently? How can that impact you? How can you adjust to take their new habits into account?

You cannot – and do not want to – change everything. But, how about one thing? Just one “crazy” idea.

Here is an example: Sales at The Home Depot were down due to housing market problems and lower consumer spending. Sound familiar? So, they decided to sell off parcels of their parking lots. They are taking pieces of those giant parking lots and selling them to retail outlets such as fast-food, pet stores and auto parts. Imagine being in the boardroom when that idea was suggested!!

Here is my advice: Get together with your partners, your management team, your employees or a couple of friends or colleagues. Brainstorm and come up with your “parking lot” idea.

Get in a room with a white board, a flipchart or paper and pen. Ask everyone to help you brainstorm new ideas…laughing is allowed, criticizing is not, everything gets Written Down, as reasonable or wacky as they sound. If you can, have someone facilitate to keep you on track – they should not participate but keep you focused. Alignment and agreement among the owners or the management team is critical.

The ideas may be slight twists on something you are doing today, or they may be the most ridiculous-sounding ideas you have ever heard – at first! They may have something to do with operations, finance, human resources, production, marketing, sales, customer service or any other part of your business. New markets, new products, new staff member, an improvement to your production or sales process.

How can you make at least one of these ideas fit your business this year? It may or may not work. If not, go back to that list and try something else!

David Shavzin is President of Shavzin & Associates, Inc., a Certified Management Consultant, and a master of crazy ideas. He can be reached at (678) 795-1750 or dshavzin@shavzinassociates.com