Real Life Adventures in Seeing Your Future, Part 2

Jan 22, 2024 by Roger Scherping




 
                                                                         
I met another company recently whose situation really illustrated the importance of understanding the numbers of your business and seeing your future. It is a service business, and they told me they were in a cash crisis. They also told me that they were on the verge of very rapid growth thanks to a new product that they were in the process of launching. They did not want to borrow any money or take on an investor during this cash crisis if they did not need to, but they were not even sure if they needed any money.


Where to Start?

The first thing I did was an assessment of where they were at financially. For that I reviewed their financial statements and asked a lot of questions. I found that their statements were only fairly accurate. They were missing some very important information, like equipment loans, amounts owed to vendors, and a breakdown of the most recent sales by product line.

Next I used ProjectionSmart to put together a prediction through the end of the year so they could see where their business was headed.

The prediction showed that things were tight, but I really did not think they were in a cash crisis, primarily because they had a significant cash balance. They talked like they were not comfortable without a significant bank balance. I explained to them that it is not at all uncommon for a growing company to have very little cash in the bank and struggle with balancing the demands of vendors, lenders, and paying their employees.

I told them that based on our more accurate numbers, it did not appear to me that they had a crisis that would require a quick infusion of outside cash. So our prediction answered their first concern: they wouldn’t need to talk to a bank or an investor.
                                                                    

New Product

Then I asked them about their new product. It was a subscription-based service, and they had not only developed an effective online sales presentation for it, but they also had already begun to generate sales from it. The sales were actually quite impressive for the short time they had been working on it. I asked them to explain to me how the subscriptions worked, and then I modified the prediction to include the impact of this new product. I put in the projected subscriptions they thought they would sell, assumed a customer retention rate going forward, and calculated their projected sales by month.

I showed the owner how quickly this new product scaled up in revenue, and he said that the prediction confirmed what he intuitively thought the new product would do. This is common with non-financial entrepreneurs. They understand their business very well, and they have an amazing ability to intuitively understand, for example, what a significant new product like this can do for their business.

But most entrepreneurs lack the financial or accounting skills to convert their thoughts to actual, demonstrable numbers, numbers they can share with a banker or an investor. People like that will require that you demonstrate an understanding of the numbers of your business. You need to be able to document your assumptions and calculate results in order to quantify your decision making in order to inspire their confidence.


But Wait, There’s More

Then I was told that there was a second part to the new product. There was an additional revenue stream that would come from these new subscriptions. I took down the new details and modified the projection again to account for this additional revenue stream.

Both the owner and I thought this second revenue stream would be much less significant than the subscriptions themselves, so imagine our surprise when the model showed that the revenue from the additional revenue stream was projected to far exceed the revenue from the subscriptions! So I guess even a talented visionary owner cannot always intuitively understand the impact of their business decisions. That is why it is so important to really understand your numbers and do a prediction!

Our priority then became to launch the new product line as quickly as possible to increase sales and improve cash flow. If all goes as we projected, we expected to not need any outside money and just work our way through the rapid growth while successfully balancing all of our cash demands.


Do a Prediction
                  
How do you help your clients see their financial future? I believe there is not a better service a trusted financial advisor can provide to their clients.
                         
If you’ve ever created a spreadsheet financial model to do a prediction, you know what is involved in capturing history, creating a budget, and determining what other plans the company has and then creating a multi-tab spreadsheet that creates an income statement, balance sheet and cash flow statement. You worry about whether there is a formula error somewhere or a bad assumption that drives an erroneous result.
                                                     
The good news is that at ProjectionSmart we’ve duplicated the spreadsheet for you and put it in a quick and simple-to-use online tool! Instead of concentrating on cells and formulas, you just concentrate on your inputs and the results. So ditch your spreadsheet!

When you use ProjectionSmart every month with your clients, maybe you are able to bill for an additional hour create their prediction, or maybe you bill them an additional fee for their prediction. It’s up to you.
                                             
With a monthly prediction, your clients will be more successful and more comfortable with their numbers. They will be anticipate and avoid problems, leverage resources more effectively, make more quantitative business decisions, and feel much better about their business’s future – all because of you!

On your side, you will increase your monthly revenue, have happier and longer-term clients, help your clients be more successful, and differentiate your practice.
                                      
After all, who doesn’t want happier and more successful clients and more revenue? Let us help.

Here’s a video to show you how easy ProjectionSmart is to use.                            
                                                 
Try out the new ProjectionSmart here.


 

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