Over the past couple of Podcasts that we have produced (and as a gentle reminder you can download all of our Podcasts on iTunes) we have been hearing a common theme from our co-hosts – the importance of planning. We at AcceleratingCFO have always felt that planning your company’s financial strategy on a short-term and long-term basis is the foundation of all successful companies to maximize their owner’s and shareholder’s wealth. Dave Braun and Troy Amdahl – the “Oola Guys” – emphasized how important writing out your plans are in order to achieve your goals in your personal and professional lives. Mark Taylor from Vistage gave us one of our favorite quotes during our Podcast series – “You cannot manage what you cannot measure”. And Sal Alesia in a recent podcast told us that the very first thing that he does when he meets with a prospective client is ask him/her what their plans are for the next five, ten and twenty years. Clearly there are many benefits to sitting down and devising a blueprint for getting you from point A to point B. So why do so many people avoid this important step?
“You cannot manage what you cannot measure.”
When you are starting out with your new venture and you are testing the waters to see if it will be successful, you might be able to get through without having an open mind. However successful managers of divisions don’t get to their fullest potential without having the forethought to plan where they want to be. After you spend any time doing an activity you need to understand where to go next. And you don’t get to the next step without understanding how you performed against your expectations and where you need to be to exceed your expectations.
You need to make time to plan unless you are planning to fail. It is easy to keep doing things the same old way but, like Albert Einstein said, “Insanity is doing the same thing repeatedly and expecting different results”.
You don’t need to be so specific in the financial goals that you are looking to achieve. Instead of focusing on getting a specific number of unit sales, give it a range of between 15% to 25% to adopt a rolling 12 month forecast so that you can continually updated on a monthly basis. The point is that planning your goals in advance does not make your company less flexible but actually more nimble with the ability to track changes in the marketplace swiftly.
Looking for a study that shows that there are significant financial benefits to planning your company’s goals? Thanks to Ashley Feinstein we have one. In a 2014 Forbes article she cited a 1979 study conducted on the 1979 Harvard MBA program. The graduate students were asked the following question: “Have you set clear, written goals for your future and made plans to accomplish them?” At graduation only 3% had written goals and plans, 13% had goals but they weren’t in writing and 84% had no goals at all. When they got the graduating class back to follow up ten years later, the 13% of the class who had goals, but did not write them down was earning twice the amount of the 84% who had no goals. Even more incredibly was that the 3% who had written goals were earning, on average, ten times as much as the other 97% of the class combined! We are not saying that planning will make you more profitable; what we are saying is that planning will help you get where you want to go.
Planning is important for many reasons. It helps establish the direction of your business. It provides benchmarks that allow you to determine if you are tracking against your plan and adjust your approach if you don’t. It allows you to focus your energies in a direction that will allow you to achieve your personal and professional goals. So even if you believe that you can manage your business intuitively, or you’re too busy to assess where you are or if you like having a level of fluidity in your company, take a moment to reflect on where your business is now and where you want it to be. Your future success may depend on it!
Thanks for reading and keep smiling!
The Prophets of Profit
