Failing to Plan is Planning to Fail – A Guide to Strategic Financial Planning: Part 1
We want to highlight many of the important planning processes that need to be leveraged when working as an entrepreneur. In this two part series we will discuss the important issues to keep in mind when launching a small business.
Failing to Plan is Planning to Fail
In case you had not noticed, entrepreneurs tend to be wired up differently than the rest of the working population. Of these differences, the most important is the ability to look at problems in other ways and come up with innovative solutions.
Some claim to be afflicted by this: like a curse which keeps waking them up in the middle of the night with another eureka moment. Of course the reality is that this ‘gift’ can also be a disaster waiting to happen if it is not channelled correctly. The risk for entrepreneurs is that they actually become busy fools.
Why? Well, this is caused by two related factors:
- In the mind of the entrepreneur, ALL their ideas have EQUAL merit, therefore all of them should be implemented. With so many projects on the go at the same time, the business is simply overloaded with changes and none of them end up delivering an effective solution.
- There is always a huge risk that the solutions are to local problems without taking the time to stand back and to identify the underlying causes or review the bigger picture. This often results in the entrepreneur wasting time in fixing the wrong problems and possibly making the situation worse.
One of the most common reasons for this outcome is that there is an imbalance within the management team around the entrepreneur. Many entrepreneurs surround themselves with ‘doers’, which means the business has the capacity to implement all of his/her great ideas. While this will address the first issue and their primary concerns, it may have the effect of creating more problems as the changes themselves work against each other.
So how can the entrepreneur ensure they are getting the best results out of their business and their team? PLANNING. There are three steps that CFO Centre has identified among effective strategic plans that entrepreneurs should adopt:
- Have the right team around you.
- Work through the necessary changes to guarantee success.
- Develop a plan to change – using basic common sense that everyone can understand.
Only when you are able to allow yourself the time and space to take a step back from your business, can you really evaluate the right course of action and focus on the ideas that will generate the returns you are looking for.
The Right Team
During discussions with the banks, it has become more and more evident that they are analyzing the strengths of a business’ management team during their credit decision-making process. They have always had a certain criteria in their decision-making processes but during the boom years, ever increasing asset values provided them with false security.
As this security has fallen away, the repayment of their loans becomes more and more dependent on the skill and experience of the management team to deliver innovative and effective solutions. Of course equity investors in SME businesses (i.e. business angels and venture capitalists) have always had to rely on their assessments of management strength throughout.
In essence there are two overriding requirements for a successful management team – skill which often comes from basic intelligence, and experience which delivers intuitive and often innovative solutions. To achieve this result many entrepreneurs use a checklist:
- Sector skills and experience which helps to identify opportunities and mistakes previously made by others in the sector;
- General management skills and experience of building successful businesses;
- Finance skills to monitor the issues that need changing and to control the implementation of those changes to maximize their effectiveness.
Bringing together a team of individuals that fulfils this criteria will give investors, whether they are banks or private equity investors, the confidence they are looking for. This will also enhance the relationship with investors, bringing them together as part of the business team.
But of course none of this works if there is not the glue to hold the team together. This ‘glue is the enthusiasm and passion of the entrepreneur, enabling the entrepreneur to enhance the strengths of the individual team members. An entrepreneur should be looking to harness individual abilities and enable them to achieve the strategic direction he or she is looking for.
For this reason, many entrepreneurs are now looking at business mentors, coaches or CEO clubs to guide them with their intuition and elevate the intellectual horsepower of the management team. One of the biggest challenges faced by many start-ups is recognizing and appreciating the need to surround themselves with people who have greater business experience and intellectual horsepower than themselves. Only then can they take ideas from paper to the boardroom and eventually to market.
On our next post we will be discussing the identification and planning of changes to your business as it continues to grow.