“When you argue with reality, you lose, but only 100% of the time.” — Byron Katie
Optimism is essential for an entrepreneur. Your ability to see possibility propels you into business. In tough times, it is what keeps you in the game.
As an optimist your attention is on tomorrow, on the next opportunity, on the next win. When reality conflicts with your optimist view of the world, you choose your view.
Unchecked optimism is potentially destructive. Without a counter balance, it can lead an entrepreneur down the path of your greatest fear, losing everything.
Data is essential to every CFO. There is no way to hide from the reality of data. Real is real. When used appropriately, financial data is very grounding. When used to excess, it is paralyzing.
Optimism and data are both double edge swords. Too much of either is a slippery slope. But when you bring optimism and data together, magic happens. It creates clear boundaries for your decisions, exponentially increasing your odds of a financial win.
Here are two examples of how financial data and optimism in partnership create winning decisions.
The Next Big Score
Type of business | Specialty Contractor
Situation | You have your eye a job that is bigger than anything you’ve ever done. The margin is paper thin. There is overwhelming competition and if you don’t compete on price, you will most certainly lose. If you get this job, it will lead to so much more. It will put you in a new league, you’ll become an “A” player. It’s like a dream come true.
In a few days you have your financial review meeting with your Outsourced CFO. Your fear is they will focus on the low margin job and try to get you to walk away.
How financial tools help | In the sales forecast review, the CFO brings up the low margin job you are pitching. She built a tool to help you see clearly the impact of taking on a low margin job to gain market share. She already populated the spreadsheet with your current and forecasted job data.
As you work with the new tool, it becomes clear that the company can afford to take on one new, big, low margin job. If you take on two, your net income margin gets too thin and puts you at risk of losing everything.
The win | Your take one last look at this dream job to make sure it will indeed open the right doors to the greatest volume of new, good margin work. You compete and you win the job. The business goes on to grow 25% in revenue with a healthy profit. The following year, new doors are opened and better margin jobs flow in, creating a record net income for the business.
Hiring Your Way Out
Type of business | Job shop manufacturer
Situation | Net income is anemic because sales aren’t where they should be. An owner, whose primary role is selling, is constantly distracted by administrative issues. In addition, the current sales team isn’t meeting their goals, but they are selling enough that you wouldn’t let them go.
You determine the only path to success is a new sales person. In your mind, the cash register is already ringing, and you are well on your way to the business of your dreams. The lead time to get a sales person profitable isn’t in your line of sight.
How financial tools help | The Financial Operating System™ your Outsourced CFO installed includes an annual financial plan.
As you, your management team and your CFO work through your financial plan, it becomes clear that the new sales hire is going to wipe out your net income. To make matters worse, there is potential for significant loss if the new sales person fails to meet realistic first year goals. Your retained earnings can’t handle this kind of impact. Not yet anyway.
As you looked more deeply at your options, you come face to face with the hard reality you are avoiding. Your way out is to get your current sales team on goal and to remove the administrative obstacles in the way of the owner/sales person. The answer is to fully utilize current resources.
The win | You do the challenging work of getting your sales team on goal and holding your fellow owner accountable for their role. The business has its best year ever. History validates your decision. The process of building a financial plan for the year, guided you to a very profitable decision.
For most business owners, financial data isn’t your first love. Used wisely, it can become your best bud.
At Mackey Advisors, we delight in helping entrepreneurs prosper. Call us if we can help you.