It is the end of the financial year. It is time to turn your mind to next year and onwards. As a business consultant I hear business owners say “Why should I sit down and do a budget? I can never predict the future. It is a waste of time!”.
Think about that statement. The person saying it is focusing on the wrong thing. She is concerned that her forecast cannot ever be accurate. The premise is that no one can predict the future. However, what is beneficial is the process of forecasting not the accuracy so much.
The process of stopping to think about your business. To ask your mind to think about what could be. What should be. Asking what will my business be like in 12 months time? How will it feel? Who are are customers? What will our value proposition be by then. How will we innovate to gain market share? How many people will be involved? How do I motivate my team?
My fictitious skeptical client now says “I can do that! But doing a budget is a waste of time.” Not so. This is where you can use a robot to help! “A robot?” she says. Yes. You use a computer based financial model of your business – your robot.
It is no good dreaming without generating numbers. The numbers need to make sense. Without numbers that show your business being consistently profitable you really do not have a viable proposition to continue on.
You see, computers are simple folk that do what they are told. Above all, they are systematic and accurate. Now the human brain is clever. In fact very clever. So clever that it imagines the numbers as it wants them to be. It makes assumptions and interprets how things are going to turn out. But the brain, in doing so, is often wrong.
That is why we use a financial model. It forces the human brain to concentrate on one part of the budget at a time. The money flows and timing interactions in a business – no matter how small – are complex. The brain wants to believe in an outcome that it likes. The computer simply adds it all up according to the programmed logical rules and gives you an unbiased result. Often that result is not what is expected.
Think of your financial model as a tool that can help you turn your ideas into numbers. See what the result is. Analyse that result. Is that what you want? If not, make changes until you develop a forward projection that meets your expectations.
Now you have a financial plan for your business. You have a pathway to follow.
(How you follow that pathway is the subject of another post.)