Valentines' Day

Charlie Parker from Charlie Parker Bird/The Original Savoy Recordings (1944)

"Romance without finance is a nuisance Baby, you know I need me some gold Romance without finance just don't make sense Mama, mama, please give up that gold"

So what has Charlie 'Yardbird' Parker got to do with Business and Management Consulting? Because he was asking for money – without a hope of getting it. Much like many entrepreneurs and their business plans seeking funding from banks, private equity, the IDC, DTI, friends and family – you name it. Asking for money, but with little hope of getting it!

I can't tell you why Charlie Parker stayed poor – but I can tell you why many entrepreneurs, business owners and managers come short when they approach lenders looking for finance.

Apart from all the usual stuff that entrepreneurs are so prone to fill plans with – vision, mission, blah blah; the part that routinely really gets the most cursory 'pro-forma' treatment is the 'Financials'; i.e. nothing less than the heart and soul of the business!

And when I say cursory treatment, I mean that entrepreneurs often get their accountant/business/management consultant to create a set of pro-forma financial forecasts – without really interrogating (and at times even properly understanding) what is going in to these financials. Meaning that the heart and soul of the business has been effectively outsourced! Or only marginally better, the entrepreneur populates a template, – "to get that part of the document done". Either way a huge opportunity is being missed.

The alternative is to approach 'The Financials' as if they are the proverbial pot at the end of the rainbow – because they are.

The 'real business' planning approach to forecasting the financials

To my mind, the financial forecasts contained in the business plan, contain all the blood sweat and tears that go into creating a new business; or expanding an existing one. As you know, the forecast financials (the projected income statement, balance sheet and cash-flow statements) are populated with line items showing where the money is coming from – or how it is being spent.

Rather than regard the development of these essential forecasting documents as a chore, each and every item which populates the income statement and balance sheet offers an opportunity to stress test and interrogate a particular aspect of the business. In effect, each line item offers the basis for a 'strategic discussion'.

For example, I've just been asked to assist with an internet start-up which is dependent on the sale of banner advertising and specific apps which the client in turn loads on to their websites. The numbers of users look impressive, as do the sale of the apps. My question: what are the projected sales based on? What market research has been done? What competitive offerings exist, and what are their prices/advantages/disadvantages?

In other words, I urge entrepreneurs, business owners and managers, to treat each line item in the pro-forma financials, as if they were the agenda for a strategic workshop. Meaning that nothing gets added as a so called income statement or balance sheet 'line-item' without being discussed, argued over, stress-tested, and generally interrogated to within an inch of its life!

In contrast to the usual j-curve trajectory of most business plans – which have more in common with the sketch below, than anything reassembling the prospects of the business.

By following this 'strategic' approach, the pro-forma financial forecasts will undoubtedly take a lot (I mean a lot) longer than the cursory and frequently misleading projections which grace a lot of so called 'business plans'; and instead, can become the strategic powerhouse of the business plan.

Which brings this missive to end with another musical reference – although hopefully not on a sour note (if you can forgive the pun).

You may not know or even like their music – but there's a serious point. The band was originally formed in 1967 – and still going strong; and I can't help feeling there's something in the name.

Here's a promise. When you come to do your business plan, if there's any section you want to focus on and treat as the strategic core – please make it your financials. Invest your blood sweat and tears wisely here – rather than panel beating meaningless vision and mission statements – and you'll see dividends:

The likelihood of getting 'some gold' from funders will be exponentially increased –and far more importantly, your understanding of the project or venture you are undertaking will be of a different order.

Take it away Bird…