HPAC Magazine

Beating Growth Gridlock

December 1, 2013 | By HANK BULMASH

Understanding what your business can and cannot do.

In his sixteenth year, Albert Einstein conceived of a thought experiment designed to help himself understand time and space. He imagined himself riding on a beam of light and viewing the universe. That visualization led to a number of startling conclusions that 20 years later made Einstein the most famous scientist in the western world.

Einstein argued that mass was convertible into energy (this resulted in the famous e=mc2 equation and from that came the development of atomic energy). He argued that time’s passage was dependent on the speed of the observer. Einstein proposed that time would pass very slowly on a spaceship travelling near the speed of light. An astronaut who flew to the edge of the galaxy in such a ship and then returned to earth would age barely at all. Meanwhile decades would have passed on earth. In other words, time was relative. 

Looking back, the amazing thing about Einstein’s thought experiment is how useful it was. Not long after his work was published, physical experiments began to confirm Einstein’s insights. That reminds us that insight is different from information. All the work Einstein did was mental. He had no equipment other than a pencil and a brain. The information he sought to understand was available to anyone reading the scientific magazines of his day. But by careful examination, Einstein discovered truths that eluded everyone else. All his life Einstein contended that knowledge comes from reflection, not from the simple accumulation of data. His work is a testament to that idea.

And that brings us to the point of business plans.

Unless demanded by a bank, the majority of business owners never create a business plan. For the most part the few who do create plans never find a use for them. That is understandable since most business plans do not provide an obvious benefit, except for documenting the obvious, which is what your bank wants it for.

Plans for banks show your past and projected revenues, your expenses based on the business you are running today and the anticipated effects of whatever changes you are considering. In other words, the business plan the bank wants to see is about your current situation and whether or not the borrowing you are contemplating makes sense in your present circumstances. This is a blinkered view. That is why these bank plans are often the product of junior staff or even outsiders such as accountants or business consultants. It is obvious an owner-manager is not going to learn anything important from a plan like that.

But there is another kind of plan – one that is actually a form of thought experiment. It can help you understand what your business can and cannot do. Want to increase sales? Good idea, but increasing sales costs money. You will need to provide more resources for sales staff and increase your capacity to deliver goods and services. In addition, more time will be spent on administrative functions. Worries about spending money to expand can lead to anxiety and even decision paralysis. In some cases, concerns about energy are more intimidating than financial issues. Building sales means more work and many businesses are so dependent on the energy of one or two people that they cannot figure out a way to get bigger.

Those two reasons explain why the majority of businesses cease to grow. At a certain point the mental and financial impediments to growth become too difficult to overcome. Many businesses accept stasis at too low an activity level because it is more comfortable to avoid change than it is to jump into the unknown.

Real business planning can help you deal with this kind of gridlock because it can allow you to visualize and work through various “what if” scenarios. What if I allowed our activity to drop by 10 per cent? What if I focused on only our 50 most important customers? What if I developed pre-planned products that our largest customers would find attractive and then used those products to seek out other large customers?

A creative plan should be used to set objectives for the business. It should be a tool for opening up your priorities for discussion with your management team and professional advisors. Most of all it should be part of a process that lets you reflect on where you want to go. That means that the idea of an annual plan, and one or two meetings to review it, should go by the board. It makes more sense to develop a three or five year plan with big goals. The plan should be re-examined frequently – perhaps once a quarter to see if interim milestones are being met or to see if the plan needs amending in view of circumstances.

Some people think of this kind of plan as a map for the future, but it is not. A map implies you know where you are going. But you cannot map the future – it is unknown territory. A creative plan is more like a flashlight in the darkness. It reminds you that you have big goals for the business in addition to the job of the moment. 

You use the flashlight to lead you in the general direction you want to go. It is there to remind you to focus, at least part of the time, on the future – instead of doing what most of us do instinctively: focus on today. <> 

Hank Bulmash, MBA, CPA, CA, TEP, is president of Bulmash Accounting in Toronto, ON. He can be reached at hank@bulmash.ca.



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