‘My financial pants are Teflon-coated’

A builder carrying a heavy bar chart showing an upward trend. In the top left hand corner of the page is a pair of boxer shorts on a washing line.

More than 20 years ago, we hired a company to refurb the Insight Associates building, and got to know the business quite well.

The founders were hugely successful. They were extremely sales-driven, with their sales people encouraged to ring a bell every time they won a contract – just like in the movies…

Shortly after we met them, they went through a pivot of sorts.

Although they specialised in refurbing small office buildings and supplying office furniture, they started chasing bigger and bigger contracts, deliberately trying to scale up. So far, so admirable.

The problem was that they continued running the rest of their business exactly the same way as before, not scaling it up in tandem.

For example they didn’t invest in better project management, which remained fairly unsophisticated.

Then take their accounts. Although they were dealing with much larger sums, more complex contracts and more intricate orders, their financial management still effectively took place  on the back of an envelope. (I exaggerate, but not by much…)

They had no clue how much money they’d have in their account next month, how their expenses were going to change over the next quarter, or whether they could manage the working capital needed for the larger contracts …

They were operating on gut instinct, exactly as they did when their company was much smaller.

One day I told one of the founders that he was running the business by the seat of his pants.

I’ll never forget his reply: “It’s lucky they’re Teflon-coated!”

Six months later they were insolvent. I guess the Teflon wore out…

Why am I telling you this? Because in my email last week, I wrote that too many businesses are sticking with the models that they know, even though we’re going through a period of significant economic and technological change.

I encouraged you to evaluate whether your business is vulnerable to these external forces, and if so, to think carefully about how you need to pivot in response. If you fail to adjust, you risk your entire business.

But as my story shows, any change must be handled carefully.

It requires excellent financial data, because if you don’t understand the financial implications of the changes you’re considering, you can end up making disastrous mistakes.

This is the root cause of almost every business failure we’ve seen.

The owners make huge decisions based on their gut feeling about the correct next step – which is often wrong.

On one level, it’s understandable. They’ve operated this way since they founded their business. Having grown it to a certain size, they are very confident about how well they knew their own company and about the quality of their own judgements.

But while this style of financial management does often work for a small organisation, where the finances are relatively simple and the owner is very close every detail, it tends to stop working as your business approaches around £1 million turnover.

That’s when the financial operations become much more complex…

As the owner, it becomes harder to keep track of every detail…

And there’s also a lot more at stake. This makes it both more difficult and more important to predict accurately how your decisions could pan out.

You need to professionalise your financial decision-making, implementing systems and processes that give you an accurate view of your financial situation. And you need financial modelling to see how the plans you’re considering will impact your business financially.

When we manage your finances, that’s exactly what we do for our clients.

We’re here to help you grow faster and increase your profitability. So together with you, we continually assess whether the way you operate your business needs to pivot.

And when the answer is “yes”, we make sure you implement any changes in a careful, financially responsible way – so you can take confident decisions based on facts, not guesswork.

To find out more about our outsourced financial management and how it can help you, please email garry@insightassociates.co.uk or call us on 01279 647 447

No matter how successful you’ve been in the past, no one’s pants are really made of Teflon. Sustained growth once you hit £1 million or £2 million depends on sound financial management – and if that’s something you need, we’d love to help.

Warmly,

Garry

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