Decision Making is Easy

Nov 05, 2019 by Roger Scherping

I met with a small business owner this week. He’s in the apparel business. His business is just a couple of years old, and it has yet to turn a profit. While there has been some organic growth, the growth hasn’t been fast enough. He has been forced to put lots of money into the business this year, and he feels it’s time to make a decision. He says his options are: (1) make the additional effort to add customers to get to the point where it’s breaking even, (2) add new products that will increase sales to the existing customers and turn a profit, (3) bring in a partner who has both equity to invest and industry expertise to share, or (4) just sell the business.

He had identified these options before we met, but he didn’t know how to begin figuring out which was his best option. Only after talking with me did the next step become clear to him. The answer, of course, was to create a business projection that allows us to model and quantitatively compare the expected financial results of each of his various options.

Following the ProjectionSmart Growth 1-2-3 approach, the first thing I needed was 12 months of his financial history. Fortunately his financial reporting was very well done, and it even included enough detail for us to break down sales and gross margin by his different sales channels.

The second thing we did was prepare a detailed budget as things stand now for the next 12 months. We broke it down by sales channel to calculate the profit that could be generated by each channel. He also had good control of his overhead expenses and was able to accurately predict them.

And finally I asked him a series of questions about his business. What equipment purchases do you need to make? What are your loan payments per month? What do you expect your inventory levels to be each month? He understands his business well, and these questions were easy for him to answer.

ProjectionSmart took all of his information and prepared a baseline financial model for us. Now we are working through the different options, modeling each one. He’s had to develop answers to questions like, can he really increase sales organically? What would it take to drive additional sales? What sales channel has the most potential? What would it cost to generate those sales? Does he need to research and add new products to the line? How long would that take, and what would it cost? Does he need to add additional staff? What value could a partner bring besides some cash to invest? What could the owner expect to get for the business if he sold it now?

We take the answers to these questions and incorporate the sales and cost estimates into the financial model. We’re building out our best estimate of the costs of pursuing each option and the expected profit for each option. When we’re through, his best option will become quantitative and clear to him.

Someone once told me, “Decision making isn’t hard. Decision making is easy. It’s getting the necessary information that is hard. How hard would it be to pick the right stock if I gave you a copy of the Wall Street Journal for one year from today?”

ProjectionSmart helps you get the necessary information to make decision making easy.

I’ve had small business owners who have used ProjectionSmart Growth tell me things like, “This is my business’s crystal ball” and “Growth is like my digital Controller.” One even told me, “I did even know it was possible to do an analysis like this.” These are all business owners who review their financial statements every month to understand where they’ve been, and they are all amazed at the insights that Growth gives them into where they are going.

Let ProjectionSmart Growth be your digital Controller. Let it help you stay on top of your business and keep you in control. You’ll be able to anticipate problems and always know where your cash is going to be at.

Try out Growth for free, and email me if you have any comments. I’d love to hear from you.



 

Return