How to see into the future

Imagine for a moment that in their infinite wisdom our elected officials decided that the best way to make the nation’s highways safer would be to pass legislation requiring every driver to wear special limited vision safety goggles. The new goggles would restrict the driver’s vision to 100 feet and because people wouldn’t be able to see over 100 feet beyond their front bumper they would have to slow down and accidents would be drastically reduced. How do you think the new “near-sighted” legislation would work? Would you feel safer and more secure?

I don’t know about you but I don’t care if I’m traveling 20 mph or 120, if I’m on a collision course with a rogue Kenworth I not only want to be able to see well over 100 feet, I want to be able to see around the next corner. It’s this point that brings me to this week’s topic - how to see into and, therefore, predict the future.

I know people that are working like slaves, running their businesses with little more forward vision than the silly example above. A friend was recently run down by that infamous rogue Kenworth just a few weeks ago, another will be probably be crawling from the wreckage by the end of the month and another appears to be headed down a dead end alley. The tragedy of all this is that these businesses are, or were, ran by hard working conscientious business people that are giving it everything they’ve got.

A few years ago my Friendly Republican Banker unknowingly taught me how to predict the future. I had applied for an SBA operating loan for a new business venture. There were plenty of assets to pledge and given that 90% of the loan was to be guaran- teed by the SBA I naively assumed getting the loan would be a rubber stamp process. Instead she gave me a stern stare that only Republican Bankers know how to give, (I think they go to school to learn that), and told me she would need a business plan with three-year cash flow projections.

I hate to admit it but at the time I didn’t have a clue how to create a business plan, let alone a 3-year cash-flow projection. Not wanting to show my ineptitude I said something to the effect that I would run down to the nearest cash flow projection store and pick one up.

When I started I didn’t know what the end product was suppose to look like but I had created departmental budgets before and had reviewed the monthly financials at countless corporate staff meetings so I kicked off the project by entering every number I could calculate having to do with costs, income, sales, product lines etc. into Microsoft Excel spreadsheets. I’m not a computer whiz so with the help of Video Professor it took me a couple of days to learn to maneuver in Excel.

After a couple more long but interesting days of formulating and entering income, expense and sales ratio numbers for everything imaginable I ended up with a complete mockup of the new venture on a battery of Excel spreadsheets. I learned that each Excel spreadsheet could be interconnected, therefore when I changed a number on one spreadsheet it would reverberate through the battery of spreadsheets and indicate how the change would affect cash flow and profits 6, 12, 24 or 36 months down the road. Because I had segregated the costs and profits for

each product line it became easy to see how adding and subtracting different products or different levels of sales would affect future cash flow and profitability. The package become a tool I could experiment with and with constant refinement, use as a crystal ball to see into the future to make sound management decisions.

It’s too late to drain the swamp when you’re neck need in alligators but for strategic planning a proforma Excel spreadsheet battery is a valuable tool for making strategic or even day management decisions. If kept updated, in six years a three year proforma or forward looking mockup will become a highly accurate three year backward looking tool that can be relied on to make future management decisions.

To my way of thinking, every business owner should create their own rendition of this tool. It will give you an invaluable window on the inner workings of your company.

Ernie Mitchell, Moose Lake Hill, Orr, MN, © All Rights Reserved 2010.

Ernie Mitchell’s “Ten-Second-Tip”

Always remember, people don’t buy your product. They buy the benefits associated with owning, enjoying and profiting from your product. Sell the benefits … Sell The Sizzle!

BONUS TIP: Walt Disney’s definition of excellence: Do what you do so sell that people can’t resist telling others about you.