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

When Should You Prepare Your Exit Strategy? Now!

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by Collette Parker

The blood, sweat, tears, and late nights put into starting up a business will one day culminate in your exit strategy.  Whether you are passing the company to a son or daughter, a partner, or selling to a competitor or larger corporation, the day must come to say goodbye.

It helps to be prepared for that day, and the sooner the better. Ironically, the birth of a new company naturally inspires an exit strategy. To be prepared means to get the highest valuation for your company; to do that, you have to give yourself adequate time and do your homework.

“Start 15 years ago”

First of all, says Numbers Coach Mike Iverson, plan for the sale of a company well before the day you must sell. “Often business owners don’t give themselves enough time. Give yourself a three-to-five-year planning period to lay the groundwork so that your business is functioning at a high level.”

A buyer will wonder why you are selling your business, and will look for any gaps or holes in your business plan and market. Give yourself enough time to find the gaps yourself and fill them as best as you can.

Iverson has worked with business owners in the past that have very thoughtfully gone through the process of selling. They were contacted by other companies who asked, “Have you ever thought of selling your business?” They might answer, “I’m not ready now,” but cultivated those relationships with a specific purpose in mind. They knew that such relationships could result in connecting with a person who could acquire their company, and they understood how prudent it was to develop a business relationship with that individual to learn how they operate.

“Start those relationships early on, even as you start the company – maybe 15 years before you want to exit,” says Iverson. Then you have relationships in place, and the sale becomes a more natural result.


Do Your Homework

The other aspect of preparing to sell a company is making sure the company is ready for you to walk away from it, and still functions properly.

“Someone has to do the financial due diligence,” says Iverson. “You may have to hire someone to help clean things up, such as customer files and HR files. I can’t stress enough how important it is to get all records in order. It will make the process that much quicker.”

If you’re selling to an individual, that is a different process than selling to a public company.

Iverson spent several years at a public company working in mergers and acquisitions, and observed that emerging growth companies under $20 million that sold for higher valuations had good solid records and complete financial information. They closed their financial records on a regular monthly basis and had an accountant on staff who could ensure the information was complete, timely, and correct.

“Not only will the selling process go much smoother, but it can actually increase the value of the business,” says Iverson. “If you go into a business where administration, accounting, and operations are very disorganized, you will likely get limited or incomplete information which will cause you to question if the numbers given to you are correct.”

“Companies that get the best valuation, in my experience,” says Iverson, “are those that have their financial house, their administrative house and their operational house in order. They are the companies that have planned their sale for a period of time, and they have the right theme in place that could help perpetuate their business even without the owner being there.”

Be Ready to Let Go

If you’re going to sell and you are the sole owner, your business has much greater value if you have set it up so when you walk away, there are no hiccups. You should not be the only rainmaker, nor the only person who knows how to make it run.

“Some companies that are worth less than $10 million have an owner that wants to be in every piece of the business and has a strong personality that people equate to the business. That can run the risk of diminishing the value of the business,” says Iverson.

Ultimately, when someone is looking to buy your business, they want to buy an operating business they can run immediately without investing a lot of additional resources. Customer retention is one of the key elements of success, especially when the owner is gone. While some owners or management teams stay in place after a sale to help transition, nine out of ten times the owners will not be there 24 months after the sale.

Letting go is tough for an entrepreneur who has put their full energy and life’s savings into building a vibrant business.  Planning ahead for the day they want to exit will provide better odds that the business will continue in capable hands and make the sale easier for everyone.

If you want to be prepared for selling your business down the road, check out the Numbers Coach M&A Tool Kit

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

Want the Secrets to Building a Great Company?

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I enjoy reading books of all types, both fiction and nonfiction.  Lately, several books captured my attention more than others, one of which is The Traveler’s Gifts, by Andy Andrews.  Its written as a story about principles that to me seem timeless.

Here are the gifts (tips) that I came away with.

  • The buck stops here.  We are responsible for the past, present, and future
  • I will seek wisdom and be a servant to others.  My experiences become the collective body of wisdom that can be shared
  • I am a person of action.  Seize the moment and choose now
  • My destiny comes from a decided heart.  Have a clear vision
  • It’s a choice to be happy and possess the spirit of gratefulness
  • Greet the day with a forgiving spirit, which most of all means to forgive yourself
  • I will persist without exception, great leaders like Churchill persist through adversity.

These are a few gifts that can provide the foundation to building a great business from your passion.

Here’s to all the gifts that you will share to aid in the health of your business!

Mike

Want More Creativity?

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Business owners often talk about the desire to bring more creativity to their company and their personal life.  Creativity certainly will have different meaning for each person, however, a common denominator in a business context is coming up with creative solutions for your customers or processes.

How does someone unlock creativity?  Is there a way to increase the likelihood of getting your creativity quotient higher?

I recently read an article that quoted Deanna Berg and Chuck Dymer, who have been speakers at various Vistage events, on ways to unlock creativity.  Here are a few tips.

Business Creativity

  • Brainstorm session with your team where the session has the following principles.
    • Defer judgement…criticism derails creativity.
    • Freewheeling…no idea is a bad one.
    • Quantity not quality…get the ideas out there.
    • Speed is important…impose a time limit on the session.

Personal Creativity

  • Consider the following for personal creativity boost.
    • Change a habit…change the time you work out.
    • Experiment with something new…. learn a new hobby.
    • Find a new path…. take a different route to work.
    • Change an attitude…. take something that annoys you and change your attitude about it.

Carve out time on a regular basis to get creative.  It can be the best time spent to build your business.

Here’s how taking time for creativity can propel your business to new levels!

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

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

7 Little Strategies that Equal Big Success

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It is often practicing the simple habits that result in running a successful business. There are proven leadership methods that can make the difference between a growing and profitable business that stays afloat, and one that sinks. You’ve heard it before: Work smarter, not harder.

Here are 7 tips to do just that in this new year:

  1. Watch cash flow. Poor finances can ruin any business, so it is imperative that a small business owner understands how to keep the cash flow steady, spend intelligently, and grow the business intentionally. Regular cash flow projections are an important ingredient to ensure you don’t run out of cash.
  2. Follow the leader. It’s key to learn from people who have achieved goals like yours. It’s lonely at the top, but having a mentor, or being in a business leader program, are smart and simple options.
  3. Track spending! It’s easy to go overboard on certain areas of your business, such as marketing. Pay close attention and track spending to determine what spend activities work and why.
  4. Know your strengths and hire for your weaknesses. Hire people who can complement your skills and help fill in your blind spots. Think efficient use of energy and resources.
  5. Take a minute to plan. Strategizing and planning can oftentimes be easier said than done. However, spending time on this activity up front will lead to greater successes and less risk in the long run. Successful companies have vision and execution.
  6. Get in the right mindset. Having confidence in your ability and knowing you can achieve success matters. Don’t underestimate your subconscious’ s ability to impact goals. Visualization techniques and the use of mantras you can live by can drive that impact. “Slow is smooth, and smooth is fast” is a mantra used by the Navy SEALS when they are under pressure situations.
  7. Delegate, delegate, delegate. There are people who can do it as well, if not better, than you can. Hiring the right people and clearly outlining their responsibilities will make your job easier and your company more effective. Micromanaging can be detrimental to your success.

Some successes in life are owed to good luck and good timing, but the majority are the result of good leadership, efficient use of resources, and seeing opportunities to take. The strategic habits we implement in our business are an important part of its success.