Running a small business these days, especially a startup business, can be similar to flying a passenger jet. Many business owners gauge the performance of their companies by how much cash they have in the corporate bank account. While this might seem like the intuitive approach to managing your business finances, it leaves your business open to significant risk of failure. Imagine trying to fly a passenger jet without a flight plan and without instrumentation.
Now I will admit that I don’t know much about flying. However, I do understand some important concepts that I believe can be adapted for the purpose of running a business. Two of these concepts are having a flight plan and using instrumentation to maintain your course.
A flight plan is critical to a successful flight. It sets out the departure and arrival times, the altitude, path and velocity among other aspects. Without a flight plan your passengers would not know when to board or when to expect to arrive at their destination. Sounds like a National Lampoon’s Vacation to me! Or worse, your flight path could cross over with another resulting in a potentially sudden and tragic failure.
Even with a flight plan, it can be difficult to keep a passenger jet on track without proper instrumentation. Sure the passengers are all on board, but without knowing your speed, direction, altitude or how much fuel you have left how do you know you will arrive at your destination before hitting empty?
Every business needs a well thought out plan and a dashboard to keep on track with that plan. We have all heard about the rate of failure for small businesses. A plan helps you identify the direction your business is headed; how much investment is needed to ride the growth curve; when the business expects to provide a return on this investment; and how much cash is needed to sustain monthly operations. Not knowing these answers is leaving the fate of your business to chance.
Like the instrument panel in a passenger jet, an accurate and relevant dashboard is necessary to make sure the business is on the right path. It can show how fast you are growing and how much cash is available to fuel the business. This information can help validate whether the business is attracting enough of the right type of customers to meet its short-term financial obligations. Running out of cash is like running out of fuel; eventually you crash.
It is important to review the dashboard frequently. It is not enough to wait until the end of the year to look back at what has already happened. Instead, the dashboard needs to show how the business is performing along the way. Some information should be reviewed monthly, while other information must be reviewed weekly or even daily. The information should include some leading indicators that help predict where the business is headed.
Finally, consider the importance of having the right information available at the right time. You wouldn’t want to see what your altitude was five minutes ago, or rely on a faulty reading on your rate of descent while landing a passenger jet. Nor would it be useful to know how much cash was on hand two weeks ago, or rely on an incorrect receivables listing while negotiating payment terms with a key supplier.
Surprises can be nice when they involve chocolates or flowers; however, when it comes to flying an airplane or running a business we are always better off when things happen on purpose, rather than by accident. How well does your business run? Have you encountered any uncomfortable surprises? It may be time to implement a plan and a dashboard to help you manage your business. Do you have a story about your business you would like to share? I look forward to reading about it.