Nov 24, 2021 | INSIGHT
Budgets
Budgets have traditionally been constructed once a year and become your yardstick to measure progress against.
Pros – They keep you honest because you have fixed goalposts to measure against.
Cons – For most businesses, and particularly coming out of a particularly turbulent two years, are they just an outdated concept? Forbes wrote a great article recently on why they believe exactly that and worse, if not managed properly can encourage flawed decision making within a business e.g. departments using their budget up, regardless of whether they need it, so that they keep their allocation for the following year. Plus in a traditional budget cycle information is outdated almost as soon as it is pulled together
What’s the solution?
For long range forecasts set high level targets eg. revenue, gross margin and profit, underpinned by specific business assumptions so that you have a clear goal that you are aiming for and can measure progress against.
Forecasts
Is this Budgets 2.0? Forecasts are updated on a rolling basis as business drivers and outlooks change. This allows businesses to have a more realistic view, particularly in the short term of 6-12 months
Pros – your planning process remains live with a current view of where your business is taking you.
Cons – if your systems aren’t set up properly you can spend more time planning than executing. Forecasts are best to review short term scenarios so it’s hard to see the impact on the long term financial outlook particularly if you are trying to make investment decisions which have a longer timeframe for payback or are being implemented for strategic reasons that will only bear fruit outside of the forecast window.
What’s the solution?
Use automated tools that easily sit on top of your financial systems in order to pull through actuals and update drivers
Business cases
These sit outside of the “whole business” forecasts and are used to stress test scenarios prior to making investment decisions.
Business cases should be reviewed with two lenses 1) the incremental cost and revenue involved and 2) a fully costed version which loads in an allocation of fixed costs. The reason for reviewing this in both ways allows you to assess the short and long term impact. In the first instance using just incremental financial impacts lets you see the immediate impact and the cost of testing the new initiative. Subsequently the fully costed version will give a more realistic view on what the longer term financial impact is on the business. For example there may be additional incremental headcount with no requirement for additional office space immediately. However over time those additional heads will incur associated costs so looking at a fully costed scenario will give a better indication of its long term profitability.
What’s the solution?
Use the incremental view to assess the short term investment required and impact on the business. Then layer the fully costs version over the existing BAU (business as usual) forecast to see the financial impact on the whole business over time.
How do your business processes stack up against this lens? If you need a hand feel free to reach out for a free 20 minute consultation https://calendly.com/michelle-cfo/20-minute-initial-consultation or email me at michelle@lanternpartners.com.au
Oct 21, 2021 | INSIGHT
Not all businesses have, or need, boards but if you do then how you talk to your board is a key part of getting the most value from the relationship.
1. Make sure first you are aligned with your board as to what success looks like
Before you can work out how, you need to know what you should be talking to the board about.
The financials you report on should tell the story of the strategy and goals of the organisation.
So first you need to make sure that there is an agreed, documented framework for this. At a minimum you need to get this signed off every year but for earlier stage, faster moving businesses it may be more frequent.
2. Define the metrics that demonstrate you are on track towards your goals
You need to ask yourself what are the key metrics which show progress against those goals.
There will be traditional financial metrics such as revenue and costs vs budget. However other key metrics are needed
- How are you measuring the activities that you need to execute in order to meet your financial targets
- Sales pipeline
- Recruitment of sales leads
- Marketing plan and execution
- Hiring plans and headcount to effectively run your business
- Effectiveness of spend eg.
- Revenue per salesperson or location
- Product or service line margin
- Quality of revenue
- If your business objectives are to reduce client concentration, achieving your budgeted revenue through growing your existing clients rather than new clients does not align with your goals
- Similarly if you want to increase sales in higher margin products you will need to provide this level of commentary in reporting to the board.
3. Consider the makeup of the board and their areas of focus. Non-exec and advisory boards are usually brought in because of their specific experience or expertise so make sure you’re
a) utilising this experience and asking their advice and
b) addressing their hot buttons in your board communications.
4. Consistency, summary and visualisation
There’s a lot of information you can communicate but the information you should communicate to the board will be at a much higher level than what you use to make your day to day decisions. However, remember that your board is not as involved in the day to day operations as you are, so ensure clarity isn’t lost as you do this.
Presenting the information consistently can really help the board quickly understand information. If reports are presented in a consistent order and with a consistent level of detail, bonus points for visual representation of data ie. graphs and charts. Make it easy for them to see the information you are trying to convey.
There are some great reporting tools in the market which link directly to your accounting system and produce professional documents in seconds so you can spend time on the commentary and discussion in the meeting itself.
5. Agree actions and next steps
Whilst the discussion in the meeting might be illuminating change only comes with accountability and action. To this end agree actions and responsibilities in the meeting and report back on them at the next board meeting.
Are you in need of a financial health check? Book a FREE 20 minute discovery call Email me at michelle@lanternpartners.com.au
Sep 23, 2021 | INSIGHT
I recently started boxing again after a long hiatus and I’m loving it, but more than just getting back in the ring and improving my fitness, it is also reminding me how valuable the lessons I’ve learned from boxing are for business and life in general.
Technique trumps power
When I started boxing I was REALLY unfit. The only way I could keep up in a session was to really focus on my technique and get maximum effectiveness from my boxing…so I didn’t die. I see it now with new boxers who are, often, really strong but have no technique. I’m wincing as they flail around like drunk kangaroos, thumping bags and pads indiscriminately and funnily enough they are the ones that end up exhausted and with shoulder injuries. So it is in business, get your technique right from the beginning. That discipline will serve you well in the future and as you build your business strength you’ll be unstoppable.
Focus is everything
From time to time I like to pretend I can multitask and most of the time I believe it. When I box I realise how utterly flawed that thinking is. If I try to chat, or my mind drifts, when I’m sparring I invariably screw something up in the combination, get hit or (accidentally) hit someone else in the face. It is impossible to truly focus on more than one task at a time. When I have something really important to do at work, I try to keep that in mind.
Focus is everything (part 2)
When I first started boxing I thought the stress relief would come from the cardio and the actual punching. So wrong. When you’re boxing you can’t think about anything else because you’ll get hurt (Refer point 2) or hurt someone else. There really is something special about meditative focus. In business it is this type of focus which can really propel your business forward by giving you clarity and outside of business allows you to completely switch off and recharge. Boxing has helped me improve this mind muscle.
You learn more with someone than alone
I’ve always learnt far more boxing with a partner than on a bag. Humans are unpredictable and keep you on your toes. Whether you are holding the pads or actually boxing you have to keep your wits about you as every combination always happens in a slightly different way. You need the same in business, you can’t learn in a vacuum. It might feel safer, you might not be ready to move off that bag, but the sooner you can test your business with real people you’ll grow.
Mix it up
Similarly, if you only box with one partner it might feel really comfortable but there is nothing better for switching up a gear than getting out of your comfort zone. For me, boxing with a southpaw (leftie) is frequently confusing but really makes me think! People that operate in the opposite way from you often have something to teach you.
The benefit of the right equipment
Equipment definitely isn’t everything but when I started wrapping my hands and wearing proper gloves my knuckles didn’t feel like they had just had a fight with a cheese grater and my wrists were supported enough to step up the punching power. In business, pick the right time to invest in the right equipment, it will protect you and allow you to flex your business muscle.
Keep your guard up!
I don’t mean you should walk through your life on the defensive but one of the first things you are taught when you box is to keep your guard up and it’s a good habit. Even if you aren’t boxing competitively, keeping your guard up protects you if you momentarily lose concentration or from an accidental, unforeseen swipe. This is precisely why you need to keep your business guard up, buy the right insurance and put in place the right frameworks so you can keep your focus on your business and know you are protected from what you don’t see coming.
Learn where your power comes from
The effectiveness of your punch doesn’t come from your fists. The power comes from your whole body. When you use your whole body you get more power with less effort. Similarly, in business, work out how you operate most effectively and efficiently and how you can get the best results from your efforts.
Get a great trainer
A great coach is worth their weight in gold. I had an amazing trainer when i started boxing and he taught me so much from day 1 that I still use today. He competed globally and was incredibly skilled but he was also hugely invested in his students and wanted them to succeed no matter their level. If you can get that for your business, grab it!
Breathe
Such a cliche but so important. If you don’t remember to breathe you will fall over, no matter how good you are. So it is in business and in life. BREATHE.
Aug 26, 2021 | INSIGHT, SELLING YOUR BUSINESS
There comes a time in (most) founders’ lives when their thoughts turn to selling their business. For some, it has always been the objective, and for some a gradual realisation that this is the endgame. Regardless of how this objective has been arrived at, the key to a successful exit is preparation, preparation, preparation. A useful structure for this preparation, particularly for a first-time seller, is to approach using these three pillars.
1.The practical or “Is your business ready for sale”
The readiness of your financial books and records, corporate compliance and governance, and your general record keeping will make a huge difference in maintaining the credibility of your business as you enter into the due diligence phase of the sale process.
“Simple” things like
- Will the high-level figures you talk to in initial meetings be borne out in the detailed financials of the business?
- Compliant board minutes and regulatory filings sound obvious but how well organised and accessible is this information for presentation to a third party? The same goes for your customer and supplier contracts.
- Are your financial policies and processes best practice and defensible?
- Even if your size doesn’t yet require a statutory audit, are your financials recorded in line with key accounting standards? You may want to consider an audit before it is formally required to give an acquirer confidence in the robustness of your numbers.
These health and hygiene factors are absolutely key in maintaining the confidence of potential acquirers.
The sale process will also monopolise a significant amount of founder time, more on that later, so can your operations run successfully and smoothly without your full attention? If the decision-making within the business has been fluid up to this point it’s essential that key management and the broader business have a clear decision-making framework so the business doesn’t stall or spin its wheels just when you need it to be hitting all its targets. If it doesn’t yet exist, create it.
This first pillar can take a significant amount of time, particularly if the business wasn’t started with this outcome in mind, so start early.
2.The commercial or “How do you best maximise value on sale”
Sure, your financials are important for maximising value on exit but there’s so much more to it.
Are you really clear on where the value lies in your business and are you realistic about what that valuation is? Similar to when you are selling a house, it’s tempting to believe the real estate agent who gives you the highest valuation but it might not give you the most realistic outlook.
At Lantern Partners we’ve worked with some great advisers who work closely with founders, and us, to tease out the key value proposition, and the financials that support that, to really maximise the value of the company.
And demonstrating how the business can continue to run successfully without you, fully, at the helm through the sale process will go a long way to demonstrating the robustness of the business model you’re presenting. Smart Company reported that “almost one-third of a business valuation is lost during a sale due to poorly structured succession plans”
Talking of advisers, getting the right combination of transactional, legal and tax support is critical. Both from the perspective of experience within your sector and for your size but also a commercial team with the sellers’ interests truly at the heart of how they operate. A deal team who leave their egos at the door are worth their absolute weight in gold.
3.The mental or “Are you ready for the sale process”
Know why you are selling and keep that in the forefront of your mind throughout the process.
Prepare yourself for an emotional roller coaster. Have a great support network (professional and personal) in place because there are always bumps in the road, even for the smoothest of transactions, so being able to hold your nerve and keep perspective is essential. Business isn’t personal but it absolutely will feel like it at points.
Preventing deal fatigue, or at least its unintended outcomes is important.
Some processes are quick, particularly at the moment, but most processes feel long, particularly for a founder who is used to rattling through decision making. Having a team you can rely on to push through the mundane elements and ensure you are properly engaged when it counts is critical.
So with all this in mind, how do your pillars look today?
Feb 22, 2021 | INSIGHT
SWOT Analysis? Executive Summary? Execution Plan? I shared my thoughts with Officeworks on how to write an effective business plan and just what needs to go into it.
https://www.officeworks.com.au/campaigns/noteworthy/work-how-to-write-an-effective-business-plan?
May 12, 2020 | INSIGHT
What steps can finance take to help the business survive COVID-19? I shared my thoughts with FM Magazine
https://www.fm-magazine.com/news/2020/may/how-to-stabilize-and-recover-after-coronavirus.html
