Can You Predict The Future?

In my last article in this series, I told you of one reason I believe caused a lot of my clients to be struggling in their businesses had a lot to do with the fact that they didn’t grow their business acumen as their businesses grew.?

Most of the businesses, thankfully, had reasonably well updated books and decent bookkeeping in place. However, the Profit & Loss Statement as well as the Balance Sheet were rarely reviewed.?

The famous management consultant, Peter Drucker, stated: “If You Can’t Measure It, You Can’t Manage It."?

I believe it was Tony Robbins who rephrased the sentiment along the lines of: “What Gets Measured Gets Improved.”

Well, in the cases of my clients, it was measured. But measurements mean nothing if you aren’t reviewing the outcome and numbers, and if you aren’t reviewing it, then you certainly aren’t managing it.

So, although, they had the information available, most of the clients just didn’t much look at their numbers with any regularity. As I have claimed before, the numbers tell a lot, and it’s often in the numbers that you’ll find the answers to where you need to set in and what you need to correct.?

If you don’t course-correct but keep going along the trajectory leading to poor results, then it’s just a matter of time and the pain of the poor results will become very noticeable.

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I also stated that many of my clients just didn’t feel comfortable reading financial reports. Part of this was due to the results being so depressing, that they just couldn’t face them, but the other part had a lot to do with just not knowing ‘how to read’ the financial results.

As I stated my clients all were pretty smart people. They certainly were great at their trade and they were great at reasoning and deducting matters of communication and, yes, numbers.

In reviewing all these cases, I’m left with the feeling that much of it, had a lot to do with them never having been introduced to financial reports by anybody, really. A lot of their reservations and perhaps trepidations of consulting financial reports, had a lot to do with stories they told themselves of lack of knowledge and understanding, simply because the reports represented unfamiliar grounds and they were avoiding facing them, instead of embracing them and learning what the numbers mean.

For sure some of them told themselves, that they weren’t book smart. And yes, many of them, were more of a manual labor character than an office type character. But they were business owners nevertheless, and that probably requires a certain minimum of observation of numbers and the like, wouldn’t you say?

Now, before some of you go judging here, please understand, that while there may be more cases of not feeling comfortable with financial reports among my more blue-collar businesses so to speak, than the white-collar businesses, I saw this omission of reviewing book and financial reports for the businesses all over and in more abundant numbers than one would have, or should have, expected.

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Learning the numbers and reports and how to read them, they certainly all could. With perhaps the exception of one or two clients, all my clients easily grasped the lessons and understanding upon a decent review and walk through of a Profit & Loss Statement and a Balance Sheet.

And the one or two, who had perhaps a slight challenge, quickly got the idea of what we were talking about and how things related to each other, once you made it more relatable to them.

After all, the numbers of financial reports are pretty much just simple math consisting of additions and subtractions, and finally expressing some numbers in percentage terms. Underlying some of the numbers or using the numbers, you may have some simple multiplication and divisions, and again a use of percentage calculations. But that’s pretty much it, isn’t it? ?

Using percentages can be particularly important and helpful when for instance seeking insights to e.g. how your results are trending year by year, or such as expressing how much your profit margin (%) is etc.?

Again, I called this part of your business acumen. But there are other factors and tools involved in business acumen.?

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While, all the clients had high sense of processes for their trade, such as how they would do the groundworks, poor the cement and establish the foundation for a building or a car park lot or whatever, and such as how they would excavate and remove old oil tanks cleanly and environmentally friendly, or paint houses, set up fences, upgrade your air-condition system or whatever, pretty much none of them had any true system as to how they were carrying out business.?

Like so many other business owners (most, I suspect), they would have their typical daily routine as to how they went about their day. Such daily routines, would often include something along the lines of going to the place of business, open up the doors, switch on the lights, grab a cup of coffee, sit down by desk, fire up the computer and dive into their email inbox or get sucked into their Facebook, and then basically say to them themselves: “Now open for business,” and then wait for the day to unfold.

Only in a few of these specific cases did I see anything that looked like a system for ensuring that a desired outcome would be worked towards.

Reflecting on the 100 or so business cases in my sample, I can maybe, and only if I’m being really generous, count two businesses that actually had set specific goal or idea about what number they wanted to hot for the given year. That’s just 2% had anything resembling a specific goal.

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I cannot say that really surprises me that much. I can be astounded about this fact, but not surprised. But the reason that I’m not very surprised has more to do with the fact that so many people completely disregard or perhaps even worse ridicule spending a moment on setting a specific goal for their business to reach within a specific time period.

In business, specific goals in this connection often takes the form of a budget. A budget in this sense typically will state very specifically what numbers you expect the business to reach over the course of a specified period of time.

So for instance, for businesses that follow the calendar year as their fiscal year, they would have specific number goals for sales , expenses, and profits/losses the business would achieve by December 31st of that year, maybe even of the next year too or further. The best budgets would have specific numbers for each (at least) major line item (probably) corresponding to each line of their Profit & Loss Statement.

Better yet, the business would have a budget where these numbers are broken down on a monthly basis, and it would have comparison numbers for results actually achieved for each of the months for the year prior.

We won’t go deeper into budgets and their build up here. That may be a discussion for some other time. Suffice it to say, that far too many business owners I’ve met completely disregard the use of budgets, and often state making these is a waste of time.

I guess, you can tell, I don’t agree at all on this. Yes, you are kind of looking into your crystal ball and aiming to predict the future, but you do (at least with established businesses) have some historical numbers and experiences to base your predictions on. You’re also, if you do this right, setting yourself on a “mission” to ensure that you will do what it takes to accomplish your numbers that you set in your budget.

You’d be surprised just how accurately it seems, you can set up your budget, and how twelve months later you can find that you pretty much hit all the numbers almost to the dollar. Even when you set up your numbers reflecting highly ambitious results, it often seems that you will reach the goal. This latter then begs the question: “Did you set your goal too low?”

Will you get it right always?

No.

Could there come a major change in the condition of your business or business environment (e.g. such as effect of COVID-19)?

Absolutely.

But you will already have a fair idea what the progress would look like or would have to look like for you to reach the goals.

I don’t aim to discuss here the level of goal aspirations or how far you should reach, dream or engage in either wishful thinking, law of attraction or elements of combining such with decisive actions. I also here do not wish to begin discussing what you should do, if an unexpected disruption comes into play.

Instead, let’s return to all those who discard the use of budgets and sometimes downright ridicule them as being “waste of time.

When I’ve encountered this attitude, their explanation typically have to do with the fact that they find that, you’re trying to predict the future (like I stated, looking into a crystal ball), and additionally they’ll state, that there are too many variables that can (and often does) change during the course of a year, and that soon enough your budget, that you spend time and effort on, is more or less worthless.

Other times, they’ll claim that budgets are “academic,” and that they operate in the real world of cause and result, of action and reaction or something to that tune.

I have my own “rules” for when you need to discard your initial budget and be “forced” to make a revised budget and when you shouldn’t. Again, the details of budget-making and associated rules is not for this particular article, but what I do wish to do is address this attitude, because it’s highly likely that many who will over time be reading this article will have the same sentiment of: “It’s just too much of a waste of time to create a budget for your business.”

But I challenge you to find many of the top performing businesses you can find, that does not have a budget. All large brand companies that you can probably think of, more than likely, have a budget. If they do, and they are successful, wouldn’t it be wise to take a hint and let that guide you a little?

Success leaves clues.

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One of the funniest arguments I’ve met among clients for why they didn’t believe in budgets came from a farmer. He said to me, that his results were much depending upon how much he and other farmers in the market space would be able to harvest that given year. The size of his own harvest was important as to how much he could sell for that year, and the size of the collective market because that would influence the market price. I completely agreed on these points, of course.?

His funny argument was, though, that the size of his crop was much to do with how the weather unfolded. And the weather was up to God.?

I didn’t necessarily disagree with him on these points either.

Yet, I kindly asked him permission to look at his sales numbers from every month for the past 5 years. I quickly listed his sales numbers in a table, month by month, and for all 5 years. More importantly and certainly, more illustratively, I then presented a graph with the client’s numbers.

Now, for this article, I couldn’t find the particular file, but I had pretty much the same argument and discussion with another client of mine. This client was in the business of selling and delivering heating fuel, so much the same reasoning behind the results were presented to me.

In this matter it was still up to God to deliver upon the weather, but in this case, it had to do with the temperature he would serve for the area in which the client operated. The colder the weather, the more sales.

Again, I didn’t necessarily disagree with the client on these points, but as with the farmer, I asked if I could be allowed to have a look at their sales numbers, and I did the same exercise as mentioned before.

Here’s what I found (as illustrated in a graph, see headline image, if this rendering is too small):

Please note, as apparent from looking at the graph, that I was visiting the client in December of 2017. That’s why you see the sales for that month drop to zero (we didn’t have the numbers for the month yet of course).

I believe you’d understand my arguments I had for the client in return when you see the above graph, but instead of presenting the arguments I might have given the client, let me just ask you these questions and I’m sure that you will see my point without further explanation:

1.????Would you say, that you quite possibly could predict with some level of accuracy what their revenues would look like for the year?

2.????Would you agree, that you could relatively accurately predict, seasonalities and outswings year over year, month over month?

3.????Would you say, that you could possibly draw out a line for what it would look like in 2018, if you dove a little deeper into what was going on in the business and perhaps had some ideas about what changes they had experienced more recently and what plans of implementation of new activities they may have for the next year?

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I always liked business for the fact that you actually have many knobs you can turn and many routes and actions you can implement in order to turn your results towards something desired.

Let’s say, you were predicting next year’s result, but not just predicting, but setting your desired results as your goal.

Would you feel you could fairly comfortably draw out what the line would look like (shape as influenced by results of month by month)?

What about the position on the vertical scale?

If you had some decent insights to more current market conditions (upsets and improvements), and if you trusted in your own skills and your those of your team (employees) and had keen determination in implementing initiatives to build further upon your business, would you say that you could place such graph line at a vertical height you would feel comfortable with?

In other words, do you feel you can actually fairly accurately predict the future?