Mixing Numbers and Words: Keep it Simple 4

Lots of people think of themselves as either words (or concepts) people or numbers people. In business planning, however, it’s hard to separate the two. Even the words and concepts people need numbers–the sales forecast, the expense budget, other metrics–to make their planning real. And the numbers people need to move away from the numbers long enough to think through the core strategy, how their business is different, what their customers want from them, and the rest of that heart-of-the-plan center.

The problems come when people get bogged down. Some people fear writing; they think of the empty page, spelling errors, grammar errors and bad days in school. Some people fear math. They think of arithmetic errors, red marks on papers and not being qualified.

And the magic solution is just keeping it simple.

  • As for words and concepts, particularly at the beginning, think of the core as that elevator speech, maybe full bullet points, but not a term paper or well-written prose. It doesn’t matter. Nobody but you is reading it. You can dress it up later when you actually need to show it to an outsider.
  • For the numbers, keep them simple. Do a sales forecast. Do an expense budget. Be mindful of the cash-flow traps, watch your cash balance, but don’t think you need a full financial forecast from Day One. Just some estimates you can track and review, and use to manage plan vs. actual. If–and only if–you’re a startup, do your starting costs, too.

You may have a business plan event, in which case you’ll probably want to do full explanations with supporting information, covering the bigger market picture, the team background, company history and a complete financial forecast. That would include sales, personnel, profit-loss, balance sheet, cash flow, even the business ratios and probably a break-even analysis as well, plus maybe what you’re going to do with the money you’re seeking, how much of your company you’re trading for investment and so on. But wait until you need it before you get it.

And for the words and concepts people, you already have somebody running the numbers of your company. You have to have that to survive administration and taxes. If you’re just starting, then you can usually find somebody who understands basic business numbers so you can add those skills to your team. Remember it doesn’t have to be just you; you can build a team with co-founders or partners, or contractors or employees, too. Regardless, somebody will have to run the numbers once you get going.

For you numbers people, I think I know you pretty well even though I was a lit major in college and wrote for a living for years. I discovered numbers in business later, when I got the MBA. Most of you are keeping those concepts in your head– things like positioning, differentiation, strategy and focus–because you think about them through the numbers. Don’t sweat the format, the mistakes or the sentence structure: Just tell your story. And start with the numbers; that works just as well.

Remember, with the plan-as-you-go business plan, it’s start anywhere and get going. Build it as you need it.

That having been said, I want to share a words-and-numbers together story. This is from my book Hurdle: the Book on Business Planning:

In 1974, I switched from general journalism, writing for United Press International from Mexico City, to business journalism, writing for Business International and McGraw-Hill World News. With the switch, I found myself covering business and economics instead of general news, writing for (among others) Business Week and Business Latin America. Because I thought it would be nice to have some idea what I was writing about, I went to the local graduate school at night for courses in general economics, accounting, finance, and marketing.

As I learned about macroeconomics, and how to read financial statements, I discovered that the truth in business is almost always a combination of words and numbers, and can’t be explained with either one without the other. For example, when a Central American government announced a new federal budget that it said was going to both develop growth and reduce inflation, the numbers said that was a contradiction. You can’t do both; you can do one or the other. You could only see that by dealing with both words and numbers.

I went on from there, in that book, to plow through the whole numbers thing as if everybody had a full business plan event to worry about and therefore a full, complete formal plan to do. This was too much, in retrospect. You can track and manage most businesses with the core plan numbers in the sales forecast and expense budget.

A business plan is like that, too. You can’t describe a plan without both text and tables, both words and numbers. The single most important analysis in a business plan is a cash flow plan, because cash is the most critical element in business. With the way the numbers work, however, you can’t do a cash flow plan without looking at the income statement and balance sheet as well.

You really can’t do the income statement without looking at sales, cost of sales, personnel expenses and other expenses, so you need those too. And you’d have trouble doing a sales forecast without understanding your market, so a market analysis is recommended.

And then you have the break-even as part of the initial assessment, and tables for business ratios, general assumptions, and other numbers. Step by step, the business plan becomes a collection of tables and charts around the text.

Although cash is critical, people think in terms of profits instead of cash. We all do. When you and your friends imagine a new business, you think of what it would cost to make the product, what you could sell it for, and what the profits per unit might be. We are trained to think of business as sales minus costs and expenses, which results in profits.

Unfortunately, we don’t spend the profits in a business. We spend cash. Profitable companies go broke because they had all their money tied up in assets and couldn’t pay their expenses. Working capital is critical to business health. Unfortunately, we don’t see the cash implications as clearly as we should, which is one of the best reasons for proper business planning. We have to manage cash, as well as profits.

That’s all true, but not for all plans–only when you’re doing the formal plan for outsiders. With the initial plan-as-you-go plan, some of that can wait until later. I am going to explain all of it in my next book, by the way, but some of it waits for the business plan event, so you do it when you really need it, as your business and plan grow.

About the Author Tim Berry is the founder of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry. Follow Tim on Google+ Read more »

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  • Mac

    Could you perhaps elaborate on what you mean by “cash-flow traps”… or is that what you’re talking about further on, in he “cash is critical/we spend cash” part of the second pull-quote?

  • http://blog.timberry.com Tim Berry

    Mac, yes, happily, and thanks for asking. The cash flow is so much more important than simple profits that it hurts. Maybe its OK if I just reference the “10 Critical Cash Flow Rules” post from a couple of months ago, on this blog. I think that covers it well enough. In addition, though, I’d like to refer you to the cash is king chapter of my online book at http://www.hurdlebook.com.
    –Tim

  • http://ravimobile.blogspot.com/ ravi karandeekar

    Thanks for the post. As you say, i consider myself as a words man. I am motivated with your advice of keeping it simple. To start with, i am going to make a business plan of my Pune real estate blog network!

  • http://www.ElevatingYourBusiness.com Maria Marsala

    Very insiteful article. You wrote “You can’t describe a plan without both text and tables, both words and numbers”

    How often someone creates goals that are really dreams because there are no numbers — nothing really specific to shoot for or monitor.

    I was wondering what accounting book you would recommend to those starting businesses but don’t have a financial background. I do a lot of explaining what all those numbers and reports you mention (above) are to my clients :)