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Failing to Plan is Planning to Fail – A Guide to Strategic Financial Planning: Part 2

Failing to Plan is Planning to Fail – A Guide to Strategic Financial Planning: Part 2 

In the second part of our ‘Failing to Plan is Planning to Fail’ series we will identify areas where change must take place and the rules you can follow to make sure your business thrives.

What to Change

In the recent past we couldn’t switch on the news without hearing of another business closure with the loss of many jobs. Sadly, this trend may continue.

Underpinning this evidence is the stark reality that businesses and their entrepreneurs are not effectively adapting to the changing economic environment, or they are failing to change fast enough. While the normal reaction is for despair to set in, many take the time to assess their position thoroughly, finding positive solutions.

Most of the unpleasant outcomes are pretty evident through effective financial reporting (e.g. falling margins, increased stock or work in progress levels, falling enquiry levels, and reduced cash balances to name but a few). The management team must identify the underlying causes, which could be anything. For example, the business may have failed to spot a critical change in customer requirements and as a result it is losing existing customers and failing to secure new ones.

It is always strange how fierce competition and uneconomical pricing is blamed. The process of identifying what to change is complex, but more often than not it requires the combination of intelligence, intuition and patience.

To this point, the well-known business tool ‘Thinking Process’ by Eli Goldratt (pioneered in the 1980s and still used today) outlines these strategies:

  • Identify the symptoms or problems you are trying to solve.
  • Try and connect the symptoms with logical explanations, forming a chain or multiple chains.
  • Look for the root causes through the connected chains.

There is a saying among many successful business managers: “When I am busy, I like to spend 30 minutes a day just thinking and when I am really, really busy, I need at least an hour.” While they may not necessarily know what they are doing, this thinking process is what they are referring to.

Develop a Plan to Change Using Common Sense

The solutions to most problems faced by businesses are pretty obvious when the root cause is identified and its effect understood.

In fact, the answer may well have been discussed and dismissed in recent times because of a lack of clarity. Maybe the issues were deemed too simple or the presentation of the solution was flawed because it was proposed as a solution rather than being recognized as an underlying cause.

The huge benefit in adopting a more intellectual approach to business planning is: 

  •  The number of solutions required is significantly reduced. As a result the ‘busy fool’ syndrome is avoided because fewer projects are undertaken.
  • Achieving employee buy-in is easier because the underlying problem is more widely understood, as well as the impact it has on the outcomes.
  • Overall implementation is far easier to achieve with full understanding and participation.

While adopting an intellectual approach can resolve many issues, it’s important to recognize that there are often cultural issues in many businesses that prevent changes from occurring effectively. The most relevant cultural issue is the fear of failure.

For businesses that are struggling, this will manifest itself in employees as a fear of losing one’s job. This is a very real issue for the individual. All too often, the entrepreneur has a real fear of letting down their staff – there is a bond that holds this group together. Unfortunately this can encourage a do nothing approach and the problem might go away.

Second and third generation family businesses face the greatest risk of this because the owner feels there is sufficient historical inertia to carry it through present problems. The next generation face the added pressure of living up to the expectations of the founders and this hampers the resolution, especially when failing to react to changing patterns in demand that are the underlying cause.

Difficult decisions need to be made using the head and not the heart, and cultural issues need to be faced using an intellectual approach if the business is to continue achieving its strategic objectives. For any entrepreneur reading this and saying “that’s me and I need help”, please find more information on www.thecfocentre.ca.

Don’t forget to check back regularly as we continue to give you tips to getting your small business onto the path to profitable growth.

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