6 recurring scaling issues to monitor
It was an interesting financial planning season going into 2017. Because I work with several companies at different developmental stages and within a variety of industries, few of their challenges overlap.
Here are 6 observations I made that companies should monitor during the year:
- Your vacation accrual in the liabilities section of your balance sheet could be large enough to significantly shorten your cash runway. For example, if your total payroll (full-time and part-time employees) equals $1.2million, and you provide 4 weeks of paid vacation, then you’ll have a $100,000 vacation accrued liability. This will turn into a cash payout the last month of operations if you had to close operations. Therefore, when doing your year ahead budget, if you feel comfortable at a cash level of $300,000 (2 months of cash) during your lowest cash month of the year, you shouldn’t be. You only have 40 days (just over 1 month) instead of 60 days to raise more cash. This might come as a nasty surprise if you ever end up in this situation.
- Define what you consider a fixed cost and a variable cost in your business model. The more variable costs you have the more flexible you can be in your cash burn. Note that payroll should be considered a fixed cost and should not be cut back unless you want to make staff reductions a part of your culture.
- Whenever you use probability weighted revenue numbers for enterprise project wins and capital raising, ensure that you’re already 75% or more certain of a win. Anything less than 75% and your project or investor funding should not get acknowledged.
- Understand the political, economic, and technological context your company will engage in over the next 12 months. The global landscape is shifting more rapidly than ever before. Don’t do your work with blinders on. Discuss with peers the impact your industry, your vendors, customers and partners will face. You must learn to navigate and get ahead of the curve.
- There can never be too many stages in the sales process. That is, the more stages you have, the better you can forecast your revenue number in advance. The jump from one stage to the next must be done using objective criteria such that different stakeholders in the process can be involved to input data. If you keep missing your monthly revenue number, your cash cushion will decrease over time and your budget must be reworked to compensate for lower cash levels.
- Listen to your staff when they say that your proposal to up-level something next year is too difficult. Acknowledge this challenge and then coach them on what it would take to achieve the outcome. This pushback from staff is an annual occurrence and a positive sign that individuals are on the cusp of breaking out of their performance comfort zones.
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