Number Whispering Archives - Finance-Ability®

Planning your freedom

By Blog, Building Value, Me, Myself and INo Comments

The end of the year is always a tough time for business owners. Not only are you feeling squeezed between wanting to take time off to enjoy the holidays and keeping the (higher) bills paid, but you’re hearing the same song over and over again. And it’s not Rudolph the Red Nosed Reindeer…

Yes, year end is a time when everyone starts talking about the dreaded PLAN. Get a jump on next year, build your plan today. Can’t start next year without a plan. You know the drill.

So this year, let’s agree to stop the madness.

Instead of stressing about making a new plan, worrying that you won’t hit the plan you created last year, and generally making yourself miserable, let’s try something new.

Plan your freedom

After all, freedom is why you got into business in the first place. Being your own boss, the opportunity to choose your own path and do things your own way. When you’re just starting out, it’s an adventure.

But once you’ve owned your business for a while, you know that the adventure can consume you if you let it.

We lose sight of the fun and excitement. We see it more like drudgery. Become an employee (or worse, a slave) to our own business.

We need to remember that, regardless of industry or experience, most of us are in business to make enough money and have enough time to live out our dreams – to be free.

A PLAN can do that?

Our experience with “plans” hasn’t been rosy. Plans lock us down. Tell us what to do (or not do). Basically, they take all the fun out of the adventure of owning a business.

But what if you could create a plan that respected your way of doing things? That fit who you are and where you want to take your business?

That kind of a plan is a road map to freedom. But it’s still a plan.

Imagine that you wanted sail around the world, or climb Mount Everest, or take a sabbatical in a foreign country. Those are all incredibly freeing experiences, but you wouldn’t set off to do any of them without a plan.

Your business is one of those once in a lifetime adventures.

It isn’t a two-week vacation that you can tough out if it the hotel doesn’t have hot water. It’s a huge investment of time and money, and often, it’s also the main source of income for your family. So you need to treat it with the attention it deserves.

Otherwise, you could end up with the business equivalent of the Holiday Inn instead of the Ritz Carlton….and I bet that I know where we’d all rather be 😉

Choose a direction…and you’ve got a plan

There’s nothing magical about planning, but it has to be done. Otherwise, you’re not free, you’re on the road to nowhere…lost in space…you get the picture.

It doesn’t have to be complicated. Decide what direction you want to go, and make sure you’ve got what you need to get there – and that’s a plan. Sure there’s plenty to think about as you flesh out your plan, but for now, start with the big picture.

Take the time to define (or remind yourself):

How much money you want (need?) to make from your business

What personal goals your business will help you achieve

How much time you want (need?) to spend working

Think about what you want your business to do for you, not what you have to do for it.

So what’s the bottom line?

Over the next two weeks, commit to finding 20 minutes to dream about your business. Set a date with yourself. And actually do it.

Write down (or voice record) whatever comes to mind about why you wanted to start your business. Or if you’d rather use pictures, make a vision board or a scrapbook that will remind you.

Remember how it felt when you were dreaming about being an owner, all of the ways that your business would help you live the life you want. And capture it so you can use it to inspire you along the road.

  Feeling brave? Share this post with a friend and tell them what freedom means to you

5 Jedi Mindtraps to Avoid When You Think About Financing

By Blog, Where's the money?No Comments
When it comes to getting a loan or taking on a partner, many small business owners feel a lot like young Luke Skywalker after he crashed his fighter – dazed and confused. Their preconceived ideas about the people and the process, most of which are just wrong, keep them from seeing how everything could work together for their benefit. So before you start talking to banks and investors about investing in your company, be sure that you don’t fall prey to these common mindtraps.

Trap # 1: Bankers & investors are smarter than me

Although bankers and investors have a different kind of knowledge than you, they aren’t any smarter (or better) than you! Because asking for help is always difficult, particularly when it involves your business, I think that we tell ourselves this story to explain our feelings of inferiority.

What to do:  Instead of focusing on what you don’t know, take the time to write down the good and bad of your business. The good is a list of your assets (what you do well) and the bad is a list of the risks (where you might need improvement, or where you aren’t sure what you will do). Detailing your strengths and your weaknesses will help clarify what you have to offer and where you need help.

Then, as you meet with them, think of your banker / investor as any other vendor. They are experts in their business, but they are there to help your business succeed. No one knows your business as well as you do, and any loan or investment will be made on the basis of what you have built. Once you are clear about what you have to offer (and where you need help), it is much easier to explain that value to someone else.

Trap # 2: Bankers & investors want to take advantage of me

As mentioned above, bankers and investors are in the business of investing. They aren’t sharks – even if they play them on TV.

The business of investing means that they need to earn a certain amount on every dollar that they invest, and they need to ensure that they make investments that will actually be paid back. Bankers and investors have a responsibility to their clients (who give them the money that they invest), namely to earn them the highest return for the risk that those clients are willing to accept.

While bankers and investors are experts in the risk/reward game, they aren’t scrooges out to steal or swindle you – they’re just doing their jobs and using their experience to do the best jobs they can for their clients.

What to do: Learn everything you can about how bankers and investors make their decisions (this is a good place to start). Use the list you made of strengths and weaknesses to understand what your business offers in terms of risks (weaknesses) and rewards (strengths), and don’t be afraid to make changes to reduce the risks and improve the rewards.

Trap #3: I need to have solved all the problems in my business before I talk to a bank or an investor

Nobody’s perfect, and if you have already solved all the problems in your business, you won’t need a loan or investment anyway. What banks and investors are looking for is not a perfect business, but a business that has a good potential and an owner who understands the risks of his business and how to manage them.

While you can’t go into a discussion with an investor without a good plan, it’s perfectly acceptable to leave some of the details to be ironed out later. How to know the right level of detail? If it will change one of your strengths by more than 10%, or increase a risk by that amount, it needs to be hammered out.

What to do:  Evaluate your list of weaknesses using “disaster” scenario. For each weakness, ask yourself “if I can’t find a solution to this particular issue, what is the worst thing that can happen?” If the answer will kill or significantly diminish your business, or if worrying about it keeps you up at night, you need to find a solution before talking to an investor. Otherwise, it’s a detail.

Trap #4: I need to pretend to be someone I’m not in order to get banks & investors interested

There’s a perception that perfect projections, pitches and owners are what win bankers and investors over. Not at all – what wins investors over is solid projections and pitches made by passionate and credible owners. Bankers and investors see hundreds if not thousands of deals over their careers, and they aren’t sold by a pitch alone.

When making an investment in your company, they are ultimately investing in your vision and your ability to accomplish that vision. You need to help them see that vision clearly, and show them what it will take to get there, in terms of money, time and commitment. If you can show a compelling vision and a reasonable probability of reaching it, you’ll be heads above all those other “perfect” pitches.

What to do:  Develop a relationship with your potential investor before asking for funds. If possible, present them with an overview of your strengths and weaknesses, and ask for their advice about improving your operations and/or reducing risks.

When you’re ready to ask for funds, understand the value in your business, and get comfortable with explaining that value – in your words, your way. A banker or investor doesn’t want some slick presentation, they want to see how well you understand your business and how you can make it work. They need to see you as credible yet passionate, enthusiastic but realistic about the challenges you’ll face. Perfect only works in the movies.

Trap #5: I’ll do a lot of work for “nothing” if I create financial projections and then don’t find an investor

Like the famous “business plan”, many owners view the creation of financial projections (budgets) as an exercise that’s only useful when asking for financing. Nothing could be further from the truth!

Just as your vision will guide your business over the long-term, your financial projections will ensure that you are taking regular steps to achieve that vision. In order to have $1,000,000 in sales in 5 years, you need to sell your first product! It’s unreasonable to expect that sales go from $0 to $1,000,000, so you need a plan to help you track your progress. That means translating the long term goal into several shorter-term targets. Perhaps the first year’s target is only $120,000 – so you know that you need to sell $10,000 per month. That’s an easy figure to check, and to keep in your head throughout the year to measure your progress.

Likewise with expenses, if you know that you have only planned to spend $240,000 in the first year of operations, any expense over $20,000 per month should sound alarm bells in your head.

Having short-term targets can help you keep your business on track, and as the business grows, can also serve as targets for employees (sales managers, etc.). By instituting a budget early on, you not only set yourself up for success, but you build credibility with future investors, since they will be able to easily measure your projections against your performance.

What to do: Build a financial projection (budget) that helps you manage your business – it doesn’t have to be fancy, but you must understand all the assumptions. You should include an income (or profit and loss) statement and a cash flow (or sources and uses of cash) statement. The income statement will help you understand when your business becomes profitable (sales are greater than expenses), which is usually a point at which you need less external financing. The cash flow statement will help you understand when you need financing, and what it will be used for (either operations, before you become profitable, or for equipment/durable good purchases after profitability).

And once you’ve built the budget, be sure that you are comparing your performance to that budget regularly: at least monthly for sales and operating expenses, and at least quarterly for any equipment purchases. If you see any major variances (10% or more), DIG IN and understand where they are coming from – problems don’t magically fix themselves, so you need to identify them and try solutions until you find the right one for the situation at hand.

Each of these mindtraps are founded on a faulty perception / point of view. Because a perception exists within your mind, you can avoid these traps by educating yourself, and taking specific action to combat that perception. You have the ability to make these changes by taking concrete steps to understand the value of what you’ve created and to build that value over time. And it will not only improve your chances of getting financing, it will also improve your outlook!

Your Budget is Meaningless – –

By Blog, Building ValueNo Comments

Unless you understand where the numbers come from.

I’m betting this means that many of you either don’t have a budget, or have a budget created by someone else that you only look at when you absolutely have to – meaning when some finance person (accountant, banker, etc.) tells you to. Since we are approaching the beginning of the year, there’s probably someone telling you that “it’s that time again!”

It’s no secret that many business owners (small and large) dislike finance and finance people. They’ve got no sense of humor, they dress funny, and they speak a different language. Even when they work for you – raise your hand if I just described your accountant.

And it’s true that some finance people don’t have a clue about how finance relates to your business – they just follow the rules/formula/one-size-fits-all approach and it either works or it doesn’t.

So you might be tempted to just leave the budgeting to the finance people and wash your hands of the whole thing. After all, who needs a budget and regular reporting anyway? Banks, maybe. Eventually investors, but once you get that big, you won’t have to worry about it at all, right?


Creating and reviewing your budget regularly are one of the most beneficial things you can do for your business. And you, the owner, are the ONLY one to do it – although it’s perfectly okay to include others (like sales and production managers, and your internal finance staff once you have them) in the fun.

Why? Because in order to really understand what’s happening in your company and how you can create value (for yourself, your employees, and any investors you might eventually take on), you have to fully comprehend where the money comes from – aka sales – and how much it costs to get in the door – aka expenses.

Creating your budget requires you to understand how your product gets made, how it gets sent to customers, and how/when/where/why those customers buy it. It helps you rate the importance of any one element, like a particular customer or a supplier. And, it helps you understand the most likely place that things can go wrong (hint – it’s usually where you have trouble getting a good estimate of cost, or units sold, or something similar). And reviewing your budget regularly shows you whether things are working the way you expected them to.

Not surprisingly, all of this is very important knowledge for an owner – whether it’s related to finance or not. In fact, I think that the least important result of any budgeting process is the budget itself. That’s why your budget is meaningless – if it’s just numbers.

For example, if you budget $1,000 in sales in January, but you’re not sure exactly how those sales will come about, what actions can you take if you only sell $900? If your sales budget is based on having 5 clients that each buy $200 worth of product ($1,000), and you only have 4 clients who purchased $225 each ($900), you have learned something important about your customers – each one spends more than you thought. So missing the budget is actually a good thing, because it helps you understand your clients, and perhaps take advantage of an opportunity in the market.

Now wouldn’t you have felt silly if you’d chewed out your sales reps for missing their target?

Likewise, if you expected to sell $1,000 to 5 clients, but instead you sold $1,100 to a single client, is this cause for rejoicing or bad news? It’s a great month, but it is a risky way to run your business. You’d better be looking for additional clients, pronto, otherwise if/when this one disappears, so does ALL your business. Be kind of silly to buy that sales rep a beer and tell him to quit looking for new clients, right?

Ultimately, a budget without a process behind it is just a set of numbers. The value of your budget comes from the education you get each time you create it and the feedback you get each time you review it.

Big companies pay big money to set up intricate management systems with all sorts of bells and whistles that tell them how they’re performing (these are often called KPIs or Key Performance Indicators). You can do the same without all the expense – all you need is to make your budget work for you!

Do you use a budget? Does it work for you? Tell me why or why not in the comments!