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Battling Uncertainty in Your Company

Battling Uncertainty in Your CompanyUncertainty is all around. Sometimes, it’s more apparent than not. We subconsciously disregard a good chunk of unknowns in our personal life, but in our businesses, anything uncertain tends to cause chaos. Where is my next customer? Am I going to be able to pay bills? Is the economic climate going to pick up? We ask all these questions (and much more). For example, many parts of Houston got destroyed by Hurricane Harvey and it’s 51 inches of rain. As a result, many businesses were underwater and would take months to repair their brick-and-mortar store front. Other business, such as real estate, had to navigate multiple properties being under several feet of water – and no longer sellable either at all or at the same price. Battling uncertainty in your company is a continual fight that you must endure if you want to success.

Battling Uncertainty in Your Company

When you are battling uncertainty in your company, figure out what you know and don’t know. Why? You may be surprised of what you do know and don’t know. It also allows you to see areas of strengths, weaknesses, opportunities, and threats. For example, let’s look at the Astros baseball team – also, the World Series Champions of 2017. They had great players, great coaches, and excelled in every practice and game. But there was no guarantee that they would beat the San Diego Dodgers. In fact, it could have very easily gone the other way as the Dodgers have great players, great coaches, and excelled in every practice and game. There’s a level of uncertainty that has influence over your future. If the Astros were not able to identify a huge external threat, then they could have been potentially blindsided.

Also, it is important to know what you can control and what you simply cannot control.  Many times, we spend hours worrying about those things we cannot control. If you can’t control it, move on and spend your time solving those things you can control. I saw how uncertainty affected many companies with the most recent downturn in the oil and gas industry. Many companies where either affected directly or indirectly when oil prices plunged from $100/BBL down to below $30/BBL. This industry change caused a lot of companies to go into panic mode and uncertainty.

That’s why it is so important to conduct a SWOT Analysis while battling uncertainty in your company.

battling uncertainty in your company

Conduct a SWOT Analysis

Once you have identified what you know and don’t know, conduct a SWOT Analysis. This is a snapshot of what is going on both internally and externally. SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses addresses your internal company health. What are your core competencies? Are you maximizing their potential? In comparison, opportunities and threats addresses the external factors that have influence over your company – government, policy, economy, movements, etc.

To get started on your SWOT Analysis, click here to download our External Analysis whitepaper – addressed the OT of SWOT.

Create Plans for Known Threats And Opportunities

This is a great time to create plans for known threats and opportunities. The Harvard Business Review says that, “Uncertain times, when some things are on hold, provide a good opportunity for fix-ups and clean-ups. Uncertainty makes it tempting to let things deteriorate (maybe we won’t keep this office going or live in this place any longer).” First, fix the things you know are broken and improve on the things that could be better. Create an action plan that will address these known threats and opportunities.

In addition, times of uncertainty usually harbor very creative doomsday scenarios. Rumors spread quickly, and this season of uncertainty can cause strife among your team. Use this creative energy to find an opportunity that will make one thing certain. Ask your team to research, talk about, think of, and find opportunities to take. Sometimes, it begins will brainstorming where (not what) the opportunity lies.  As a business leader/executive communication is a priority in times of uncertainty.  You would be surprised how many times I have seen business leaders go silent in times of crisis.  This is the worst thing you can do, and it only makes things worse in your company as a whole.

Battling Uncertainty in Your CompanyAddress Your Company Culture

Typically, whenever an entrepreneur or CEO loses sight on what is going to happen, they become frantic and are not able to think clearly. As a result, that panic travels down the organization chart and no one can make a smart decision. In times of battling uncertainty in your company, address your company culture.

Address your challenges upfront. There will always be things you cannot tell your employees but share what you can. Get a feel for moral in the organization. If you have to make some difficult decisions do so and assure those staying this was the best for the company as a whole and benefits them directly.

Then, harness their creative juices to generate ideas and to find opportunities. Engage every employee – from the lowliest employee to the top leader.

After your employees are feeling certain that something is being done to make the uncertainty certain, engage your customers. Thank them for their loyalty and share your genuine appreciation for them. The last thing that you want to happen is for you to lose a big customer and for your employees to follow suit because they are uncertain of their employment.

Where Uncertainty Comes From

Business Dictionary defines uncertainty as a “situation where the current state of knowledge is such that (1) the order or nature of things is unknown, (2) the consequences, extent, or magnitude of circumstances, conditions, or events is unpredictable, and (3) credible probabilities to possible outcomes cannot be assigned. Although too much uncertainty is undesirable, manageable uncertainty provides the freedom to make creative decisions.” In other words, uncertainty comes from what we don’t know. There is no way that we could ever know everything! But there’s an opportunity when looking at the certainty of uncertainty.

The Certainty of Uncertainty

The good thing about uncertainty is that we are certain it will always be in our midst. If you know that there will always be uncertainty, then you can separate what you know and don’t know. Think about science – whether it’s how the world was created or how gravity works, etc. Scientists have created these theories will all the information that they have found and researched. Those theories hold true until more information comes along that proves otherwise. If we compared theories 300-400 years ago to now, we would be shocked that they thought that way. In the spirit of science, financial leaders must make decisions knowing what they know at the time and adapting as they get more information.

Leading Through Uncertainty

Ram Charan, author of The Attacker’s Advantage: Turning Uncertainty Into Breakthrough Opportunities, says that, “risk takers are catalysts, operating in offense mode… They’re doers who take risks based partly on fact and partly on their imagination about what could happen when those forces combine in what others might later call a convergence… The catalyst, in fact, is the one who often creates the convergence” (Fast Company). When you are leading through uncertainty, make a decision and avoid delaying for more information that you know is not going to be there. Take ownership of those decisions and charge forward. Remember, a fish rots from the head down. If you as the financial leader fail to lead confidently, then the company underneath you will begin to crumble.

It is also important to be a servant leader! A Harvard Business Review article says that, “when lives are on the line, servant-leadership is the only leadership model that truly inspires a team, because servant-leadership demonstrates that you, as the leader, put your people’s welfare ahead of your own.”

To prevent chaos, it’s important that you know how to overcome obstacles and consequently, be prepared to react to external factors. Click here to access our free External Analysis Whitepaper and gear your business up to navigate uncertainty.

Battling Uncertainty in Your Company

Battling Uncertainty in Your Company

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The Trump Effect | Part 2 How to Combat Uncertainty

Uncertainty looms as we inch closer to election day on November 8, 2016. Companies are starting to bite their fingernails hoping for one result but not really knowing what to expect from any candidate.

Brandon Julio, Professor at the London Business School and co-author of “Political Uncertainty and Corporate Investment Cycles,” wrote…

“Election outcomes are relevant to corporate decisions, as they have implications for industry regulation, monetary and trade policy, taxation, and, in more extreme cases, the possible expropriation or nationalization of private firms… “

Last week, we began a discussion about how presidential elections produce uncertainty in the economy and cause business confidence to waver.

(If you haven’t read the The Trump Effect | Part 1, read it here.)

Now that we’ve analyzed how election season can bring about uncertainty and affect business confidence, let’s talk about what you can do about it.

uncertainty

Hillary vs. Trump

Just in a week, we’ve gone from three major contenders to two: Hillary Clinton and Donald Trump.

After observing hateful Tweets, continuous backbiting, and comparing one to the other, consumers, businesses, and everyone else are feeling a little hesitant. Either way, in less than 5 months the United States will have a new President.

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Keri Gorman, Capital One’s Head of Small-Business Banking, claims that “now is a critical time for small businesses as the country anticipates a change in leadership and new opportunities and challenges, such as market dynamics and new regulations and tax laws, which can have a significant impact on business results.”

Throughout the past 16 years, we’ve seen 2 presidents and now 5 elections. Business confidence fluctuates fairly regularly, but it’s definitely interesting to take note that before each election, there is either a rise or dip in overall business confidence.

Duke University recently released the results of their survey of CFOs. When asked to compile 5 or so questions pertaining to politics and how it impacts their company’s morale, 61% of all CFOs surveyed responded that the upcoming election (between Trump and Clinton) are a concern for their company. There were 4 other political uncertainties that CFOs listed as concerns. Those include tax reform at 28%, minimum wage at 32%, Washington dysfunction at 54%, and proposed regulations by either party at 45%.

So what do you do in time of uncertainty?

Think

During this time, come up with potential scenarios that you might encounter during the course of an election cycle and 6 months after. This mentality of being forwarding thinking rather than historically minded results in you being more prepared for uncertainty.

The potential path is a little clearer now that we’ve narrowed it down to two primary candidates. Research each of their proposals. Read news articles from both sides to develop an unbiased view of their positions. Now, write down all of the potential opportunities and threats that could come from either candidate. Understanding what could come about out of the election will better equip you to start putting together action plans to react to either candidate.

This method can go for any uncertainty in the market. You may not know what is going to happen or who is going to be elected or what war is going to break out next, but if you identify those external environmental factors that impact your company, it will be easier to battle.

Find Opportunity in Uncertainty

 It’s only when the tide goes out that you learn who has been swimming naked. – Warren Buffett

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As elections near and uncertainty rises, you’ll see be able to see the metaphorical “tide” going out. Some will certainly feel it sooner than others.

Analogy: Think of fishing in a river that has a dam holding back water. Any changes in the water level are felt quickly by those fishing close to the dam, but the impact is felt later by those further down the river, further from the dam.

Where are you in the river?

Many of our clients are oblivious to what is occurring within their company. Companies essentially stick their head in the sand and pretend that nothing is happening until the tide goes out… Exposing that you’ve been “swimming naked”.

We want to show you the opportunities you and your company can take advantage of during a time of uncertainty or crisis.

Three opportunities that you can take advantage of are as follows:

  1. Weed the Garden
  2. Learn How to do More With Less
  3. Prepare for the Next Battle

#1 Weed the Garden

Even though uncertainty abounds, it presents an opportunity to “weed the garden”. Clean up your company so that you can react to whatever November 8, 2016 brings.

Perhaps an obvious opportunity is to get a handle on unnecessary costs such as overhead expenses. Overhead costs can easily rise with revenue, but as sales decrease often overhead stays the same.  Take a look at your overhead costs as a percent of sales and see how they compare to your most prosperous times.  If you’ve had some creep, it’s time to do some weeding.

Another place to look is people. It may seem harsh, but this is the right time to remove bad hires. You have a commitment to your people to keep your business running, so remove those people that don’t fit. When business turns around, you’ll be prepared to take on the right fit.

Last, check out products and services. Compare their profitability, and cut those that are costing you money or not highly profitable.

(Think you might have a pricing problem? Check out our Pricing for Profit Inspection Guide!)

After doing those simple things, your company is leaner and more prepared to adjust to any policy changes to come.

#2 Learn How to do More With Less

Your business will certainly benefit from increased productivity during times of uncertainty. Improving productivity is different for every business. To identify what can improve in your business operations, evaluate the following formula.

Productivity = Throughput / Resources

Determine the throughput and resources for your business.  Using the same or fewer resources to generate greater throughput will improve productivity, and therefore profitability. And with slower sales, you can find the time to evaluate your operations.

This is a useful step for multiple situations including economic crisis, uncertainty, low business confidence, etc. Create an environment where you are ready to take on whatever gets thrown at your company.

#3 Prepare for the Next Battle

What do hurricanes and wars have in common?

Well, it’s what people do when they are over. First responders to a hurricane plan for how they will do better during the next natural disaster. And the military strategizes how they will do better in the next war.

This is your time to evaluate what your company can do better when the economical, political, and financial climate is uncertain.

You may not be currently affected by the uncertainty of the election season, but remember the fishing analogy…  When you feel the effect of an event depends entirely upon where you are in the river.  If uncertainty is affecting the marketplace, it will affect your business sooner or later.  Best to be prepared.

What now?

You need to create a plan for each of the cases above. What will each case look like in regards to your financials – revenue projections, cash flow projections, etc. How much overhead can you carry in these stages? Be prepared to take necessary steps to ensure that your business is profitable and cash-positive.

Performance Indicators

Take some time to seriously evaluate Key Performance Indicators (KPIs). You’ll need to know major KPIs in your industry. Figure them out by talking to key customers, investigating competitors, and researching benchmarks. Once you have identified some KPIs, it’s time to track them. Track KPIs and analyze variances. Then you may use trend tools, what-if scenarios, and breakeven analyses. Create a plan for each stage so that you are ready to act if your KPIs indicate it’s time.

Screen Shot 2016-06-08 at 8.55.04 PMBut before you evaluate your KPIs, check to make sure you’re pricing your products or service to return yourself a profit. Download a free guide to check if you have a pricing problem and to fix it soon! It’s better to be proactive about the things you can control in uncertain times, such as the presidential election, than to find out that you’re a frog in a boiling pot. This analogy hints that with extremely slow rate of change, no sensation is felt.

By taking action, you’ll be able to maintain internal confidence because you are monitoring everything that you can to protect your company.

Moving Forward Through Election Season

Professor Julio wrote, “if an election can potentially result in a bad outcome from a firm’s perspective, the option value of waiting to invest increases, and the firm may rationally delay investment until some or all of the policy uncertainty is resolved.” Business confidence is low and that could potentially damage your company’s internal morale. As a financial leader, business leader, or owner, start capitalizing on tools such as those that focus on digital, analytic, and social. These are easy ways to prove that you’re coping with the external environment being so uncertain.

The election process is something that you cannot control (besides your vote), so control that which you can and continue to remind your team that you’re supporting them.

Last week, we offered you our Know Your Economics Worksheet in the Trump Effect | Part 1. This week, download our Pricing for Profit Inspection Guide to apply what you learned to easily discover if your company has a pricing problem. This is simple thing you can do to deal with uncertain times. Click here to get your free guide!

Pricing for Profit Inspection Guide

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The Trump Effect | Part 1 Business Confidence & Uncertainty in Elections

Business confidence is low. Uncertainty is high. Candidates are spewing whatever words they think will win that one last vote. Challengers have dropped out left and right, leaving us with 3 major contenders.

business confidence presidential elections

Make America Great Again. | Hillary for America. | A Future to Believe In.

Now what?

business confidence presidential electionsPresidential elections bring all kinds of uncertainty. Voters are choosing from candidates that have opposite policies with little to no middle ground. Businesses aren’t sure what to invest in and when the oil crisis will end. Economists are unsure of where the economy is going.

Business confidence: an economic indicator that measures optimism and pessimism that business managers feel about the outcome of a company.

Uncertainty: state where there is no objective nor are any outcomes or alternatives known.

Talking is one thing, whereas acting could result in something entirely different. If Sanders is preaching for free college, we have to assess how those words are going to work when they are acted upon. Whereas if Trump is pushing for the wall, we have to acknowledge that there is a lot more work that goes into building a wall than words can speak. If Clinton wants to have 33% of all energy sources come from renewable energy by 2020, we have to factor in the feasibility of accomplishing the goal in that time frame.

Talk is just talk. And there’s a lot of talk going on with presidential campaigns! This causes both economists and businesses to be uncertain about what to expect. When you have three strong candidates campaigning in the United States presidential elections, it can be so easy to focus in on the differences (which are many).

Economists Are Stumbling

business confidence presidential elections

Election Angst Hurting US Economy http://www.cnbc.com/2016/06/03/election-angst-hurting-us-economy.html

Economist reckon that because of the vast differences of the candidates, we are about to see the most uncertain election in decades.

If you were to compare Trump and Sanders, it’s rather difficult to draw a direct comparison. Because of their different beliefs, economists have been forced to adjust their economic forecasts. For example, Trump is focusing on enhancing immigration laws whereas Sanders is emphasizing the need to adjust the tax code. Because of these different focuses, economists aren’t sure what to do causing severe uncertainty.

Elections Impacting Businesses

There are several macroeconomic issues that businesses witness during presidential elections: stock market volatility, currency value fluctuations, decrease in business confidence, and increase in uncertainty.

Disclaimer: We acknowledge the possibility that the economy has affected the election process (rather than elections impacting the economy). The issue of elections and business confidence is too complex to make any one assumption.

Stock Market Volatility

As the stock market becomes more volatile, investors become more anxious about making a bad investment and more conscious about making any investments at all. This results in a dip or potentially a collapse in the stock market.

According to Forbes, the Dow Jones Industrial Average is typically higher during the pre-election year out of the 4-year cycle between each election. BUT when a new president is elected, as in the case of 2016, the stock market is at its lowest of the 4 year cycle. Think of Bush in ’89, Bush in ’01, and Obama in ’09.

Value of Currency

The value of currency adjusts as a response to the change in interest rates. Each party (Republican or Democrat) has an influence on the value the US Dollar (USD). Different economic and political policies enacted by the President, among other external economic or international governmental factors, either increase or decrease the value of a dollar.

Over the past 30 years, we’ve seen inflation rates fluctuate so severely due to political elections that entire countries or regions find themselves in economic distress, a debt crisis, restricted resources, and terrible conditions for those living in the countries.

Especially during the months leading up the election and those following after the election, expect changes in value of currency.

Changes in value of currency do occur in other times than change of political command.

Business Confidence

Thomas Costerg, Senior Economist of the Standard Chartered, said that “the issue is that many candidates are ‘talking down’ the economy, affecting confidence.”

AICPA_web-logo_1C_PMS293_rThe American Institute of CPAs puts out a quarterly report that surveys businesses, CPAs, and the economy.  The 2nd Quarter of 2016 Report was released recently and showed surprising results. While this report does not compare the economy/businesses to the election period, AICPA found that optimism improved from 28% to 37% in Q2 and pessimism from 34% to 21%. Inflation is becoming more of a concern now as we progress closer to election day.

(Are you confident about your company’s unit economics? If not, download our free guide, Know Your Economics, to calculate your economics.)

Uncertainty

logo-2As an entrepreneur, I am part of many business organizations including the Turnaround Management Association. Financial advisors, credit advisors, bankruptcy attorneys, business owners, CFOs, and many others comprise this organization. At a recent meeting, the topic under discussion was how long we can expect the oil crisis to continue. Very quickly, the conversation turned towards the election currently taking place in the United States. The following ideas were raised during this conversation:

The oil crisis all depends on who wins… Who is elected as the president of the United States determines whether the oil crisis will continue beyond 2017 or will taper off mid-2017. 

Business aren’t sure what to do right now because that could all change come November 8th.

 Everything could change. Nobody really knows what to expect from any of the candidates at this point. 

Consumers and businesses are wary about investing and spending during this time of uncertainty. In addition, new tax codes, economic policies, health insurance regulations, etc face businesses. Even adjustments to the Federal Income Tax (FIT) impacts the sustainable growth rate of a business. There is a lot of uncertainty that business owners and financial leaders face.

SWOT Analysis

These issues could have severe consequences for some companies. See these as threats. This is why during a SWOT Analysis, you complete a PEST Analysis where the first letter of the acronym is P for political.

Because of this uncertainty, bankers and economists find that companies avoid hiring or investing in large projects during the second half of an election year due to the sheer unpredictability of the situation.

Arleen R. Thomas, CPA, CGMA, American Institute of CPAs (AICPA) senior vice president for management accounting and global markets, concluded after the first quarter poll hosted by the AICPA that “company executives are clearly monitoring the potential business impact of the presidential election. But overall economic conditions and challenges for their particular industries are weighing more heavily in their calculations right now…” Additionally, Thomas claimed that more weight being placed elsewhere is “likely why [they’re] seeing little election-cycle impact on such key categories as hiring or capital spending.”

During this uncertain time, it’s useful to find economic indicators that impact your business.

What does all this mean?

Typically, we find that business owners or financial leaders stick their head in the sand during times of uncertainty. Remove your head from the sand. Know that this is happening. And prepare for anything. It will be okay. This too shall pass. business confidence presidential elections

What can you do now?

First things first… Make sure that before you analyze external factors that could impact your company, you know the basics of your company. More specifically, know your unit economics. This is one simple step that you can do to ensure that you, your management, and your company know where you stand.

If your economics are out of whack, then regardless of who gets elected, your business will suffer. If you’ve checked that your economics are sound and you’re still finding issues, you might have a company that is in trouble. This could be an issue with internal factors.

If your company is still bleeding, then check out next week’s blog for the Trump Effect | Part 2.

To help you deal with this uncertainty, we want to give you a free guide, Know Your Economics, that will help you analyze the building blocks of profitability in your company. By knowing your economics, you’ll be better equipped to project the future more accurately and deal with the economic uncertainty to come.

Know Your Economics (on blog)-2

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Why do most sales projections fail?

One common perception is if most sales projections fail, why do it? As you probably know, sales forecasts are used to predict a certain amount of revenue over a given period of time. Whether this is based on a gut feeling or on historical data, the worst thing you can do is over-promise and/or under-deliver.

Remember: “What gets measured gets managed.”

Why Do Most Sales Projections Fail?

Projecting revenue is essential. Two weeks ago in our blog, How does a CFO add value?, I mentioned the three legged stool analogy. If your sales fall short of projections, you’re going to run into some issues with respect to cash flow, inventory, or a lack of resources. Whether you are releasing a new product or are continuing to project growth in your sales, it’s imperative that your sales projections are accurate.

Sales Manager vs. CFO

Sales managers and CFOs normally have different perspectives, mainly because their roles contrast greatly. The sales manager is often more concerned about his or her team and maintaining customer relationships. They’re also generally fairly optimistic (sometimes overly so) in their projections.

The CFO looks at the bigger picture. They move 3-5 months faster than sales people or accountants, because they’re forward-thinking and continuously making plans on how to improve the company as a whole. This often leads to conflicting predictions with the sales force.

For example, Bill (the CEO of ABC Company) asks Steve (the CFO of ABC Company) what he projects sales to be in the next quarter. Based on previous performance, Steve predicts about $3.8 million, because last quarter they generated $3.7 million. That’s about 2% higher than the actual revenue generated, which is reasonable considering their historical record.

But then Steve the CFO asks Ben, the Sales Manager, what he thinks. Ben’s top salesperson, Lillian, performed over 40% better this quarter compared to the previous quarter, and he expects her to positively influence the sales team with her success over the next quarter. Ben optimistically projects $4 million, which is almost 8% higher than last quarter’s revenue, and 6% more than Steve’s projection.

When you increase revenue by just 2%, the bottom line also increases by a substantial amount. When comparing the bottom lines of a 2% increase in revenue versus an 8% increase in revenue, which would you think is more realistic? And which number would you accept as a CFO?

Let’s look at a more recent example.

Case Study: The Apple Watch Dilemma

Let’s refer to the Apple Watch situation last year… Apple optimistically projected to sell 41 million watches. Shortly after releasing the product, analysts altered that projection down to 31 million. Pretty soon, Apple decided to be a little more realistic in their projection. Thus, they reduced it yet another 10 million. Why do you think that is?

1. Their “gut” feeling was poisonous.

It’s natural for a company to be excited about the release of a new product.  They were absolutely ecstatic that this product was finally going to launch. This positivity created a bias for future projections because they were the only ones formulating this prediction, not an outside group of differing opinions.

2. The idea that a new product equals new data.

“We don’t need to check our historical figures because this product never existed in our company before, right?” Wrong. True, this is a new product. However, there are other ways of comparing and predicting your sales.

For example, if I was the CFO of Apple, and Apple Watch decided to launch a new app, I would look at similar, previous apps that cost the same for marketing, production, and other direct costs associated with the app. It’s common sense – how much can you usually afford to produce?

projections fail

Apple quickly saw that their projections were wrong and just as quickly adapted. But companies that are worth $10-100 million can’t necessarily afford to be 20 million units off of their projections. A projection that wrong could have easily put a company without the resources of Apple into the grave.

How to Prevent Your Sales Projections from Failing

projections failNate Silver, author of  The Signal and The Noise (pg. 19-20), generally spoke to the failure of projections…

“The most calamitous failures of prediction usually have a lot in common. We focus on those signals that tell a story about the world as we would like it to be, not how it really is. [Then] we ignore the risks that are hardest to measure, even when they pose the greatest threats to our well-being. [Thus] we make approximations and assumptions about the world that are much cruder than we realize. We abhor uncertainty, even when it is an irreducible part of the problem we are trying to solve. If we want to get at the heart of the financial crisis, [then] we should begin by identifying the greatest predictive failure of all, a prediction that committed all these mistakes.”

Although Silver is analyzing financial crises, the same analysis applies when we look at sales projections of a mid-size business. The most important factors you have to calculate are risk and uncertainty. If you neglect to consider risk and uncertainty, you are most likely over-shooting your projections.

Risk & Uncertainty

People often overlook risk and uncertainty when projecting revenue. However, life happens every single day, leaving you with failed projections.

Most projections fail due to inability to calculate these two factors: risk and uncertainty. So where do you start in assessing risk and uncertainty?

For risk:

  1. Identify any risks that could occur (events, etc.)
  2. Calculate the probability of each risky event occurring
  3. Create alternatives and figure the cost/benefit analysis of each response
  4. Choose a response that would best allow you to reach your sales projections
  5.  Reassess after your company responds
  6. Continue to monitor those risky events

For uncertainty, identify those events or situations that you are not sure of. Acknowledging your ignorance is key in this situation. It allows you to put focus on places where you are not sure. Uncertainty is not the same thing as inaction as many business or financial leaders like to define it. That’s an important distinction that you must continue to remind yourself of when analyzing what risks and uncertainties your company is facing.

By completing a SWOT analysis, you’ll be better equipped to understand where risk and uncertainty is found within your company.

Conclusion

If the problem is either over-shooting or under-delivering sales in their projections, then the answer is relatively simple but is often overlooked. The Goldilocks Sales Method will help you project revenue that is not only more accurate, but will help you utilize your projections.

projections fail

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See Also:

Projecting Revenue

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The 5 Stages of Business Grief

In her 1969 book On Death and Dying, Elisabeth Kubler-Ross outlines the five stages of grief individuals experience when faced with catastrophic personal loss. The five stages are as follows:

The 5 Stages of Business Grief

In one form or another, businesses too experience these five stages when faced with crisis or catastrophe. These 5 stages of business grief are related to loss. For a business, this can be loss of income, customers or the enterprise as a whole.

While an individual must progress through the grief cycle at their own pace, it’s important for businesses to arrive at the final stage of acceptance as soon as possible so that corrective action can be taken before things get too far out of hand. The following is an illustration of how each of the 5 stages of business grief might play out in a company.

Stage 1 – Denial

The first stage of business grief is denial. The business owner may try to shut out reality or create an alternate reality that is preferable. They may also try to convince themselves that the situation is just temporary or that the crisis won’t affect them or their industry. Some may even hire consultants to validate the status quo rather than deal with the problem.

Stage 2 – Anger

The delayed reaction caused by denial gives rise to feelings of anger. At this stage of business grief, the business owner may start to play the blame game. Why are greedy suppliers flooding the market and driving down prices? Also, why are my customers so disloyal and squeezing me on my pricing? Why can’t my people just do their jobs right? Eventually, some owners may turn the blame inward and chastise themselves for not seeing the crisis coming.

Stage 3 – Bargaining/Rationalization

At this stage of business grief, business owners will often reach out to third parties to weather the storm. Some will ask vendors to extend payment terms. Some will negotiate with bankers for cushion on debt covenants or to extend lines of credit. Many daydream about the big contract they’re about to win that will turn things around.

Stage 4 – Depression/Despair

Oftentimes, bargaining during a crisis doesn’t solve the problem. Vendors are often over-extended to their suppliers, banks are having to tighten up on controls and customers are hesitant to take on new projects due to uncertainty. When the reality of the situation dawns, owners may fall into despair. After all, what’s the point in soldiering on if the underlying cause is out of your control?

Stage 5 – Acceptance

Most business owners are made of pretty sturdy stuff and will not allow themselves to wallow in self-pity for long. Consequently, they will make peace with the threat and begin to develop a strategy to deal with it. How? By focusing on what’s working and eliminating what isn’t. Transfer resources to more profitable products and eliminate those products that kill margins. Hug their best customers and fire the problem ones. Unleash the creativity in their best employees and purging the ranks of bad hires.

Crisis and catastrophe are inevitable in a business. The key is to recognize the crisis and resolve the 5 stages of business grief quickly to get back on track.

To learn more financial leadership skills, download the free 7 Habits of Highly Effective CFOs.

5 stages of business grief

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5 stages of business grief

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5 Stages fo Business Grief

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Sensitivity Analysis Definition

See Also:
Operating Profit Margin Ratio Analysis
Free Cash Flow Analysis
Cost Volume Profit Model
General Ledger Reconciliation and Analysis
How to Prepare a Break Even Analysis

Sensitivity Analysis Definition

Sensitivity analysis consists of studying the effects of changes in variables on the outcomes of a mathematical model. Furthermore, a model may consist of numerous input variables and one or more output variables. By changing an input variable, and measuring how the outcomes are affected by that change, the analyst can gauge how sensitive the model is to the individual input variable.

Sensitivity Analysis in Business Decision-Making

Use sensitivity analysis in business decision-making. It is a way of measuring and quantifying uncertainty. The analyst can create a model based on the relationships between inputs and outputs. Once the model is set up, the analyst can tweak the inputs to see how the outputs are affected. The analyst can also alter the model to create hypothetical scenarios such as a best case scenario, a worst case scenario, and a most likely scenario.

For example, an analyst might use sensitivity analysis to measure a project’s net present value (NPV) for various expectations of costs, revenues, capital investment, macroeconomic factors, and other relevant variables.

Problems with Sensitivity Analysis

First, the accuracy of the sensitivity analysis depends on the quality of the assumptions built into the model. If the model contains erroneous assumptions, then the output of the sensitivity analysis will be inaccurate. Second, sensitivity analysis may not account for interdependencies among input variables. Finally, the assumptions built into the model may be based on historical data. Therefore, it cannot necessarily be relied upon to predict future results. Also, subjectivity may taint the analysis.

You can also use your Internal Analysis for decision making. Check out our free Internal Analysis whitepaper to assist your leadership decisions and create the roadmap for your company’s success!

sensitivity analysis definition, Problems with Sensitivity Analysis, Sensitivity Analysis
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0

Growth in 2013

There is going to be growth in 2013. I recently read an interesting article highlighting a survey conducted by American Express. It indicates that despite the current climate of economic uncertainty, CFOs are looking to invest to drive growth. The economic uncertainty refers to the recent threat of the fiscal cliff and sluggish economic growth. In addition, CFOs expect to achieve higher revenue and profits in 2013.

Article on Growth in 2013

Here’s an excerpt from the article illustrating this point:

Senior finance executives report positive sentiments for their own companies… [However, they still] harbor continued concern for the U.S. economy in 2013. Three in five senior finance executives (59%) are prioritizing investments in growth… [In contract, 37% of senior finance executives] are focused on saving money in order to protect the bottom line.

Senior finance executives also report a healthy revenue and profit outlook. Three in four respondents (75%) anticipate revenue growth for their own companies in 2013, and 69% expect increased profits. They are also confident they will reach their goals: 84% of senior finance executives are certain their companies will achieve what they set out to accomplish in 2013.

This generally optimistic view also holds when projecting further into the future – 89% of senior finance executives expect to see higher revenues three years from now.

Your Company’s Growth in 2013

What growth plans does your company have for 2013?  Are you planning on investing in new technology, developing new products or services, or expanding into new markets?  Or have you decided that, due to the current economic climate, it’s safer to retrench to protect the bottom line and live to fight another day?

Find the link to the full article here.

Growth in 2013

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