Oh my goodness! You’re so busy cutting down trees you don’t have time to sharpen the axe. Sharpen the axe and the trees fall easier.
It happens to us all. Even yours truly! There are good reasons why you should STOP – make time to plan ahead. “Think ahead” – has been the company motto for years. You need time to take a step back and look at what is happening in your business from an objective point of view. You need to widen your time frame perspective from today, tomorrow, next week to three months out, twelve months out and even perhaps a two years. What are the trends? How is the market responding to your offering? What is new? Should I be updating my ideas, changing my product offering, changing the way I approach my marketing and sales effort?
A well proven approach is to start with a SWOT analysis. (Strengths, Weaknesses, Opportunities and Threats). You can do this simply with a piece of paper and a pencil. Write down your thoughts. It is simply the action of thinking about these issues that helps get you into the right mindset to do some planning.
The next thing is to look at your financial results. If you are using the BIC Model or some other, you want to look at graphs that show sales fluctuations over time. Do you know why the sales history is as it is?
Look at cash flow – if you can, have a look at it over time in a graph. Can you explain the changes? Are you collecting Accounts Receivable in a timely fashion. What percentage of sales are 30days, 60days, 90days overdue. Are these on target.
Similarly, look at Accounts Payable. What percentage is 30days, 60days, 90days. If you have a lot in 90days, that is not healthy. Does this mean that your business is having trouble paying its bills on time. If so, why?
If cash flow is a problem, you need to find out why? Are you too highly geared and therefore struggling to pay off debt? Or maybe there are unusual Capital purchases that are stressing cash availability. Of course if your business has inventory, then do you have too much? Inventory is money tied up. The idea is to sell it! (Ha!)
Then you are going to tell me that it takes too much time to prepare a budget. How can I predict sales you say? Well you can …
The point is, that as with a lot of things in life, sometimes, looking after your business’s health needs professional help. It doesn’t need to be an expensive exercise. Just to have the opportunity to discuss things like those above with a consultant helps a lot. Your consultant can actually prepare a budget framework for you. (In my case, I use the well proven BIC Model – a tool that is thorough, sophisticated and precise – saving you a lot of time and effort.)
Then you have a session to discuss how realistic the draft budget is. In the end you have a financial plan and an action sheet that makes sense and gives you target to aim for. Having a plan – an idea of the way forward – is reassuring and releases some of the tension and worry associated with running a business.
Very often, clients have told me that the process of doing the budget – the thinking, dreaming, innovating, discussing, articulating idea – is more important than the budget itself. Think about it.