Two Company Leaders Look Back: Financial Planning Highs and Lows

When we have a major decision to make, we often ask those around us for input. Sometimes we follow that advice and other times we don’t. Occasionally we might look back and wish we had followed the advice we received from others. Hindsight is a beautiful thing!

Drawing on the wisdom of others can be helpful and the benefit of hindsight is illuminating. With those two things in mind, we asked a couple of well established BAM leaders for their advice about financial planning. We asked them to share what has been fruitful and has enabled them to grow companies that are doing well. We also asked them to share the lessons they’ve learned the hard way and what they would do differently in hindsight.

Hospitality Company 

Company A is a Hospitality company with 125 employees, it has two owners and was established 12 years ago.

What financial planning have you done to grow your company to the place it is today?

The growth of our company over the past five years has been quite substantial. We have seen our revenue increase 475%, and our earnings grow 540%. Though our financial planning was not the driver of that growth, it was certainly the foundation. Without the steps we have learned and taken over the years, we would not have been able to facilitate the amazing growth we have seen.  Read more

Cash Flow Mishaps: Stories from BAM Practitioners

We asked BAM practitioners to share their insights about cash flow. Here are 6 mini-stories of BAMer ‘cash flow mishaps’ or near misses!

[Read Part 1: 10 Cash Flow Tips and 10 Red Flags from BAM Practitioners]

6 Cash Flow Stories

One cash flow mishap we’ve experienced is significantly underestimating cash needs to service a period of significant growth. This can happen when long lead time raw materials are needed, with up-front payment. It can also happen when financing growth requires organisational learning and capacity building, it then takes extra time to ramp up production, and the working capital cycle is longer than expected. Another real danger is when a series of smaller mishaps all happen at the same time, for instance low quality raw materials, late delivery of materials, late payment by customers for finished products. Each of these on their own are manageable, but create a serious issue when stacked together. We have been able to develop some cashflow forecasting tools using MS Excel which give us visibility on future cash needs, including graphs, which feed into weekly reporting. This has been invaluable to us. – MH, Manufacturing, Asia

 

A few years ago I led a new initiative at our company to build a software product for retail banking. I was hoping that the recurring revenue from product sales would offset the erratic cash flows that are typical of a project-based software company. A project team of eight members spent 18 months building the product and we spent another year having a sales team sell the product. For a small company like ours the outflow of funds in this experiment resulted in a major blow to our cash flow for a couple of years. What I learned from this costly mistake is that a project oriented service company is not automatically good at being a product sales company. They are two different types of organizations with different team structures and competencies. – Joseph, IT, India/USA

Read more

10 Cash Flow Tips and 10 Red Flags from 10 BAM Practitioners

In a truly great company, profits and cash flow become like blood and water to a healthy body: They are absolutely essential for life, but they are not the very point of life” – James Collins, Good to Great

As Jim Collins so wisely said, cash may not be the ultimate point of a company, but it is like blood to the body – essential for survival.

We asked 10 BAM practitioners to share their insights about cash flow. Read below the 10 tips they shared and also 10 ‘red flags’ – the tricky situations they have encountered where cash flow can easily trip you up.

In Part 2, we share 7 short stories of ‘Cash Flow Mishaps’ – real-life cash flow challenges that BAM practitioners have encountered

As one BAMer summed up, “Cash flow is an important indicator of how a business is doing, don’t take your eye off it!”

Cash flow tips from BAM Practitioners – Do:

1. Always watch your cash flow very carefully and plan ahead at each stage.

2. When business planning, find a cash flow projection template and someone who will force you to fill it in!

3. Use forecasting tools and technologies to help you watch and manage cash flow on an ongoing basis. Read more

Watching Your Numbers: How to Be Realistic About Your Financials

Our panel of mentors regularly answer your practical business questions. Send us your questions!

 

Dear BAM Mentor,

I am aware of the tendency to be a bit idealistic when working through the Financials section of a Business Plan. As I start thinking about the numbers, what are the hard questions I need to ask myself – or invite others to ask?

~ Crunching the Numbers

Dear Crunching,

The financial section of a business plan – this is where the rubber hits the road! Unless the BAMer pays attention to the finances, the business will not be around for very long, and any missional impact will be cut short. 

Whether you are a business person looking to raise capital for a growing business, or a new entrepreneur looking for start-up funds, you will need to to work on your figures. You can be as enthusiastic as you like about all the potential opportunities and impacts, but unless this enthusiasm translates into numbers, based on some valid assumptions, you will be walking on very thin ice.

Over the last 10 years I have been constantly astounded by the lack of financial acumen in the BAM movement. One major challenge I’ve found in working with BAMers is getting a valid set of financial statements. This lack of acumen isn’t necessarily intentional in many cases but it certainly is prevalent. I think this is largely down to two reasons: Read more

Ask Critical Questions: Number Crunching Quickly and Responsibly

Our panel of mentors regularly answer your practical business questions. Send us your questions!

 

Dear BAM Mentor,

I am aware of the tendency to be a bit idealistic when working through the Financials section of a Business Plan. As I start thinking about the numbers, what are the hard questions I need to ask myself – or invite others to ask?

~ Crunching the Numbers

Dear Crunching,

There always seem to be two extremes when it comes to the issue of financials in business planning. The first is what I term “magical thinking” and says, essentially, “Since I believe that God is leading in this business it is sure to succeed. Why waste time on financial plans?” The second and opposite says, “My business plan needs to look like something for a Harvard MBA project so I will be perfect on the numbers.” Both, as most extremes, are wrong.

I can fill volumes with stories of businesses that God “led” people to start that failed miserably. I can also point to businesses that either failed or failed to start in spite of incredibly deep and thorough financial analysis. However, I think we can resolve this dilemma based on some words that Jesus spoke related to discipleship:

For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish.’ – Luke 14:28-30, ESV

The point of this passage is to make sure of some basics before you launch into following Him and, by way of extension, before you launch into business. Loosely translated, it would be something like, “Don’t launch without thinking and don’t overthink launching.” In business planning, I’d suggest the following critical questions. Read more

Numberphobic? 3 Key Ideas to Increase Chances of Business Survival

by Dawn Fotopulos

According to an Intuit survey from 2015, 87% of small business owners do their own books and 47% claim financial illiteracy. It’s not a surprise that more than half of small business start-ups never survive to see year 5 of operations; it’s remarkable that half do. If you follow start-up history out to year eight, the failure rates are in the 80+ percentage. Any thinking person would take their start-up capital and go to Las Vegas. You’d have much better odds of winning there.

What if, by learning just a few key ideas, you could double even triple your probability of small business survival? What if a one day commitment of your time could change the next twenty years of your future and the future of your household? What if what’s in this article prevents your small business from becoming a statistic? It can. Here’s how.

Every business owner needs to answer three key questions:

  • Am I making money? (Showing a profit)
  • Do I have enough money to pay the bills? (Enough cash flow)
  • Am I building wealth or destroying it? (Building net worth)

Read more

Financial Planning: How Do I Prepare to Present to Investors?

by Mike Baer

Funding for your new business is obviously crucial – no cash, no business. So let’s think about this from an investor’s perspective. What is it that interests him or her? What does he or she want to see? What questions answered?

Here’s what I’d be asking:

  • What exactly is the product or service that you intend to sell? Don’t assume that I understand it. Make it simple for me.
  • What is the market demand for this? Is it a cool idea, a “me too,” or is there a real demand? In other words, do people really need/want your product or service?
  • Who will your competitors be? How is your idea better than and different from theirs?

This first set of questions is about your viability in the market place. Is this a real business? This second set of questions is about you. Can I count on you? Read more

Important Issues to Consider in Financial Planning

by Colleene Isaacs

Let me start by saying, I hate dealing with financials! In a perfect world, I wouldn’t have to think about or plan for the financial aspect of doing good business. Or better yet, I would have some really smart CFO-type deal with it, and be done with it. Unfortunately, as far as I know, we don’t live in that world. So just like everyone else, we have to do the financial “due diligence” (homework), necessary to do business well. There are a lot of great resources to assist as you begin your planning process, particularly when it comes to the financial matters of business. One suggestion I would make is save yourself a lot of grief, and apply a template like the “Business Model Canvas” to your planning process (see the book Business Model Generation.)  This model follows a somewhat lean startup methodology, and is a great way to visually scan and plan for all the aspects of business planning and design. 

Let’s really focus on some things you should be thinking about financially when you start the business start-up journey – a journey that is a very winding road, never a straight path!

Expect the Unexpected

A general principle is start with Plan A, but always have a back-up plan(s). You only have a limited insight into what the future will bring. You may be faced with geo-political situations, product development delays, weather, material sourcing issues, local permitting requirements and delays, transportation issues, broken equipment, etc. that you were not expecting. Any of these external elements, can severely impact planning and business execution schedules, as well as the finances required to support those activities. Just know that wherever there are opportunities for something outside your control to fail, there is a real possibility that it will.  Read more

Business Planning Part 3 Introduction: Financial and People Planning

We start a new series on The BAM Review blog this month that will focus on developing your business plan: Financial and People Planning.

In previous series we have covered Business Planning Part 1: Introduction to Business Planning and Business Planning Part 2: Product and Market. In Part 3, a new series that will take us up to the middle of December, we will focus on two essential elements in the business planning process: money and people!

Show Me the Money

Crunching the numbers and working out financial projections during the planning stage is a major part of discovering whether your business model is viable or not. Until you start to work out your costs, price points, sales forecasts, cash flow projections, break even point and so on, your business idea will remain just that, an idea. Even if you don’t need to present your plan to outside investors, you will still need to create a financial plan so that you know whether your business model can ever be profitable and how much working capital you will need to sustain it through launch. Read more