Are You Planning For a Reality Check?

A reality check can apply to a company that is in a growth mode or a company that is experiencing a decrease in sales. The numbers, a strong business plan and a good advisor or business friend can all supply some of the most beneficial reality checks we can find when it comes to managing a business.

Let’s suppose you are in a growth mode. When we find ourselves in this situation, it is easy to be optimistic or overspend on the future without truly looking at return on investment (ROI). One thing that is simple to do — yet takes a considerable time investment to do it well — is use a planning timeline for the business. This allows you to make more educated decisions for planning the team's output capability and to foresee potential bottlenecks.

For example, in working through the planning process with my management team a few years back, we identified that, with all the internal innovation we were working on, moving our headquarters would be too big of a strain on the team. Why? Because it would jeopardize the timely completion of other innovation projects scheduled to roll out to our franchise network. So, to keep morale high and our present plans moving forward, we delayed our move.

This is similar to double- or triple-booking your production schedule when you have no competent subcontractors lined up to fill in the gap. Then, you find you and your team are in a very stressful situation you created because you didn’t plan. I am continuously amazed how we will better plan for our customers’ projects than the operations of our own businesses.

A simple way to create a timeline is to develop a spreadsheet. At the top of each column input the year starting with 2008 — go left to right. (We plan up to 10 years out, yet five years should suffice for most.) Next, list each department, noting if it includes one person, a group or a part-time person. Then, list all the innovations or changes you have occurring or plan to make. After completing this, you can see any bottlenecks you have. Be sure, just like estimating a job, to assign the appropriate hours to complete each item. Be careful not to overcomplicate this process because it is not an exact science. Review it a minimum of once per quarter because your business and the market are dynamic, and so you should be prepared to be flexible to respond.

Without using a simple tool like this, you’re flying blind and could have a close call or collide with a mountaintop hidden in a cloud if you’re not careful. That can stress everyone out and doesn't help production, and it could seriously damage your business.

Let’s say you’re experiencing a 30 percent decrease in sales in comparison to the previous year, and it has now been three to four months in a row that this has happened. It is not time to panic and put your head in the sand. Yes, working hard is a prerequisite to success, but it alone will not navigate you through turbulent times — just like a pilot must know how to read the instruments so he doesn’t overreact or under-react. We have to work smart!

Your balance sheet is another important instrument reading like your “current ratio,” which is your current assets versus current liabilities. Knowing what your gross sales numbers, gross profit margins, gross profit dollars, overhead/G&A, and net profit need to be to have a healthy company is critical. A healthy ratio is 2:1, while a ratio of 1:1 is OK, and a 1:2 ratio is considered unhealthy and some serious changes probably need to be considered. If you don’t know these, find a professional business advisor, a CPA or a business friend to help you!

If sales should be at $150,000 a month and you’re at $75,000 a month for the last three months, it is time to look at making some difficult reductions to your overhead. By tracking your numbers against your budget and/or last year’s numbers, you can make educated business decisions — otherwise it is just a guess. When thinking about the flying analogy, guessing if you’re parallel to the ground rather than knowing could mean life or death to you, and in this case your business.

Make time for planning and review it for your team. It is critical in good times and challenging times. Both are necessary to keep your company healthy and fit for flying to new heights!

Use numbers, a strong business plan, good advisor or business friend for your reality check