Business Planning is Crap!

Disrespectful or just a catchy title? Either way it must be true, because so few small and mid-sized companies do it. Why would anyone who wants to build a successful company avoid doing something that might help them succeed?

Well there are a lot of very solid reasons, or so we’re told. In fact, we’ve been told one or more of those reasons so often that I made a list of them for my last book. In the interest of thorough research, of course. And then I presented that list to leaders of companies that follow business planning best practices, and I thought the comparison might make interesting reading, so here goes:

Why leaders say they don’t plan Why leaders say they plan
Planning is a lot of work; busy managers don’t have time for still another task. Planning actually saves work and time, by helping managers to avoid doing more work than is necessary to reach their goals.
Plans are obsolete as soon as they’re done. It’s no sooner done than it has to be revised. Plans are dynamic and ever evolving as the business evolves. The best ones get reviewed and modified regularly.
Plans must always be long and detailed to be of any value; otherwise how would anyone know their part in the plan? Plans need not be any more detailed than the company needs to guide its activities. Some very focused plans for small business will fit on a single page.
Business moves too fast to be held back by a plan. If we can’t think on our feet – and act accordingly – we’re going to be left behind. The speed of business is a big reason why plans are important, because we can go very far off the mark in a short time. Plans don’t hold managers back; rather, they guide managers’ forward movement.
Planning is not as important or valuable as doing something productive. Plans don’t make things happen; people do. Planning makes what we do more productive by enabling us to avoid doing things that don’t contribute to our productivity as measured by end results.
We should leave the planning to the planners and let the managers do their work. Plans done without the substantial involvement of the managers who are making the decisions are largely useless, because they don’t reflect reality.

Not to point fingers or accuse anyone of not being good leaders. Just presenting some contrasting thoughts for your consideration. By the way, how’s your 2021 plan coming?

New Year’s Resolution: Manage Costs Better!

If your revenue was impacted by COVID-19 and its ripple effect – and who wasn’t – you know it’s not going away anytime soon. How do you avoid a 2021 that looks too much like 2020 on your income statement? Maybe you can get better control of your costs – at least those you can control while still filling orders. Is there a quick way to identify where you should look?

Unsurprisingly, there is. First, though, let’s define four key terms that folks toss around, sometimes without fully understanding what they mean, thus the frequent label “buzzwords.” Here are those terms, in English:

Fixed costs vs. Variable costs

First, fixed costs. Few costs are fixed, but those that are can be large and are generally essential. Your office rent is one of them. Your full time employee salaries and benefits are another (except for part-time or hourly or contract workers). Utilities, taxes, depreciation. You’re going to absorb those costs every month, even if you don’t sell a dollar’s worth of product. As one client put it, “lights on, doors open (LODO).”

Variable costs are only those costs that increase in direct relation to sales volume. The cost of raw materials and hands-on (direct) labor, sales commissions, product shipping costs, and the like. So, if you had no sales and didn’t build product inventory in anticipation of sales, you had no variable costs; you may have a lot of idle labor costs, but that brings us to the next set of buzzwords.

Controllable vs. Uncontrollable costs

Controllable costs include underutilized, indirect and administrative labor, the marketing budget, the lunchroom snacks, travel and entertainment expenses, office supplies, employee bonuses, outside professional services, maintenance & repairs, telephone and internet services, and so on. Not necessarily totally removable, but manageable by controlling the circumstances around their use. There are lots more of these than you might think, although they often get considered as “essential to running the business.” Not always so.

Uncontrollable costs are the costs you’re really stuck with today. The aforementioned rent, most utility costs, business insurance and income taxes, lease payments, depreciation, etc. (One mistake cost managers often make is assigning these costs to a department manager, and holding that manager accountable for them. If they can’t control them, we shouldn’t set them up for failure.)

Now the management part. Have your controller or senior staff accountant go down their Chart of Accounts and identify every expense account as F or V and also as C or U. Your job then is to look at every account with an “F” and a “C” next to it, and decide how you might reduce it without impacting your ability to deliver on your sales commitments. Brainstorming first, decisions later.

Some expert once told me that all costs are uncontrollable in the short run, but all costs are controllable in the long run. Even fixed costs can be managed in the long run, but are typically uncontrollable in the short run. The key is to think outside the box and decide that what you’ve been doing has worked in the past but isn’t the only way to do it in today’s world. That’s when the magic happens.

Happy New Year!!

As we approach the last day of this most challenging year, my traditional HNY greeting has more meaning than perhaps at any time in most readers’ lives. So no education today, no hidden insights into financial potholes to avoid or nuggets to grab onto. Simply this:

  • I wish for you and yours a safe and healthy 2021.
  • I wish for you prosperity for your business, and financial security for you and your family.
  • I wish for you that you resolve to make your world a better place. Not THE world, that takes all of us, and a fair amount of patience. But if you do your part in your corner of the world, and I do my part – as I am already committed to do – the world will actually be a better place.

And that is my definition of a Happy New Year.

Thinking of selling? Don’t Overlook the Family Office

While the pandemic may have slowed down many private company ownership transitions, they are still on the minds of many owner/operators who aren’t getting any younger, or any more enthusiastic about running their companies for another 5 years or so, while they wait for the fertile selling cycle to return. We know there’s a lot of unused money out there, but potential buyers recently have been mostly shopping for bargains, being willing to accept the risk of riding out the virus cycle in return for a larger than normal return when it’s over. Not the best time to be selling, for sure. But – a new idea to consider: the family office as a buyer.

We tend to think about potential buyers coming from either the financial side or the strategic side. We think about the financial side as being private equity (PE) firms, venture capital firms or wealthy private investors who are looking mostly for a strong return on their investment, usually from a liquidity event down the road. On the strategic side we see primarily larger companies in a related industry looking for a growth or expansion opportunity or individuals who want to run the companies they buy. All valid prospects for the right situation.

But whether you feel the need to sell now or wait for the bargain hunters to drift off, here’s a buyer source that shouldn’t escape your radar – the family office – the investment vehicle of family wealth that continues to benefit the family that created it. Traditionally below the radar, these financial investors have typically invested their money via intermediaries (including PE firms). However, a recent trend is for family office management teams to look for investments directly, opening up a new source for prospects that sellers’ agents can approach directly. Their targets may include a wide range of companies from early stage through mature businesses, with a recent emphasis on environmental, sustainability and society impact businesses. But one way in which they can differentiate themselves is their willingness to ride out an investment for a longer period of time than other financial investors. Remember, they’re trying to put family money to work, and if an investment provides sound annual returns, they have fewer reasons to push for a liquidity event.

And remember, many family offices are not managed by the family that earned the wealth – they’ve turned over the active management to family office management companies that do the heavy lifting, manage the investments whether securities, real estate or operating companies, and distribute the earnings to family members who want to do other things with their time. Want to learn more? Check out or suggest to your investment banker they add family offices to their search list.

2021 Budget – Do I have To?

To our clients, friends and associates who are the CEO/owner/operator of your business – this post is for you.

Okay, so it’s been a rough year but it’s almost over. Well, not really. Only the date will change but the challenges will be around for a while. But you still know what you want to accomplish next year. Right? You know that because you’ve discussed it with your team and there’s agreement, and that agreement has been documented in something called an operating plan or a business plan or a paper napkin or whatever, but it’s in writing. Right?

If not, this post will not be of much value to you, because it deals with the critical management topic: How will you allocate the resources you’ll have available to achieve the results you’ve targeted, and how much revenue will it produce along the way? That’s the long way of saying “Budget,” and its purpose is to help you direct your resources – primarily cash and people – in the most effective way possible to fulfill the plans you made for next year.

If your plans are all in your head, then so is the resource allocation plan, and your ability to delegate responsibility for managing those resources drops to near zero. YOU become the budget manager and the gatekeeper for all spending decisions. Of course, if there is no other way you can spend your time more productively, no problem. But is that really true? I didn’t think so. So let’s move on.

Some questions you may be asking (and some short answers):

  1. If you did a budget last year, how did it work out? Close enough to be called a success? (If not, you’ve learned from the process and can now focus on doing it better this year).
  2. Did your key team members buy in, and adopt last year’s budget as their own? (If they didn’t, its success or failure was totally yours. If it was a home run, good for you. If not, hmmmm).
  3. If you have never done a budget, might this be a good time to begin? (Of course, I firmly believe NOW is always a good time to improve the way you run your business).
  4. How do you get started? (For a good short course on doing that, check out my online workshop at or Chapter 12 of my book). If you decide on the workshop, enter discount code “siciliano10” to get 10% off.
  5. When should you start working on your budget? (My bad for writing this so late. A calendar year budget project should start early in the 4th quarter so it’s done by now).
  6. More questions? (Call me and ask them directly – 888.788.6534. Your CFO for Rent).

The Case for Automation & Internal Controls

Live Out Loud” by Karen Dellosso

Why do companies automate?  The answer is typically some combination of the following reasons:

  • Better Results, i.e. to provide a better product or service
  • Error reduction, especially reducing accidental human mistakes
  • Scalable – Need to address an ever-increasing number of transactions
  • Practical – Enabling the business to do something that is otherwise impractical
  • Reliability – Assuring continuing operations regardless of what is happening around it. The latter is particularly true in the age of pandemic.

These reasons involve automated process controls.  Yet when someone mentions internal controls, the knee jerk response is to push back, i.e. ‘we don’t want no stinking controls – ‘cause they take longer, chew up resources, interfere with business…’  You understand the argument.

Consider Amazon, arguably the most successful online retailer, at least in the US.  Amazon could not be the success it is without automation.  Key to that automation are the controls built into its systems to prevent a host of problems, such as offering to sell items it doesn’t have, mis-pricing items, selling items when credit card charges are denied, sending orders to wrong addresses, putting the wrong items in the box and so on.

The goal of automated controls is to provide assurance that the business operates in compliance with its standards and practices. An IT Audit is an evaluation process designed to provide that assurance.

The twin goals of IT Audit are the development of these controls and the confirmation that they are working as intended.  While this may seem straightforward, configuring the application software to work within these constraints and knowing how to confirm that the controls are operating effectively requires specialized knowledge and skills.

To this end, our firm through its network of associate firms has the ability to assess your business systems and confirm they are doing what they need to do.  If their operation is compromised, we will recommend changes to get the controls back on track.  If your controls are insufficient, we will suggest automated, or manual, controls to plug these holes.

In either case, our objective is to ensure your business is operating reliably and effectively in compliance with your approved standards. We are Your CFO for Rent.

This post was written by our valued partner, 
Jerald Savin, President and CEO of 
Cambridge Technology Consulting Group, Inc.

Noses in, Fingers out

That expression will be familiar to readers who have served on boards of directors or have had some board governance training. They will agree with it or not, often largely depending on their financial involvement. I was reminded of this axiom while reading a post from Dave Berkus, a very smart investor/educator I once interviewed for my print newsletter. It got my attention, thus this post.

The phrase, for those not familiar with it, refers to the role of board directors as they work with CEOs of the companies on whose boards they serve. The concept of “noses in” means board members need to monitor the company’s activities, to ask the hard questions about all those areas that impact the success or failure of their companies. The job of a director – whether in a public or private company, or even a nonprofit organization – is to try to make sure no surprises will either damage the company or cause it to lose an opportunity to be better. They do that by asking the questions, evaluating the quality of the answers, supporting the good responses and pushing back at the bad ones. But none of that implies they should burrow into the details of company operations and try to direct management actions and give orders to the management team. That’s the “fingers out” part.

The board has authority over the CEO. The CEO has authority over the management team. That authority gives the board the right to hire, evaluate and fire, if necessary, the CEO. They do not have that same authority over the CEO’s management team, or the actions of those team members. And that’s where it sometimes gets messy. Board members are often corporate leaders in their own right, and accustomed to having their expectations acted upon by those under them. It’s sometimes hard for them to keep in mind that they’re not in charge when they serve as directors. But it’s critically important they do just that.

On the flip side – there’s always a flip side, don’t you know – what if the answers to directors’ questions just aren’t right, or a situation has arisen that the CEO is clearly not prepared or willing to handle? If it involved outsiders – lenders, investors, regulators – the hands-off approach may expose directors to liability because of their responsibility to the company. Yet if they were in a “fingers in” mode when the situation came up, they may be deemed a part of the problem, and they could even find their D&O insurance less than supportive.

The best course of action for a director? Diligent review of the information you get; alert monitoring of company operations in support of approved strategy; and don’t try to be the backup CEO. And make sure your insurance is solid, just in case….

If Cash is King, What’s the King Doing Anyway?

Virtually every CEO or business owner knows how to read their company’s income statement – Revenue, then Gross Profit, then Operating Profit, then Net Profit. Many only look at the top and bottom numbers, some delve deeply into the details in between. But they all know that the bottom line doesn’t ever translate dollar-for-dollar into an identical change in their bank account, unless they’re the corner ice cream store that only takes cash (are there any of those even left on the planet?)

And yet there is a clear relationship between your net income and the net change in your cash balance. That relationship is described clearly on a routine report that every accounting system produces, but that most CEOs and business owners never look at. Its name, strangely enough, is the Statement of Cash Flow. OK, maybe that sounds a bit smart ass, but it has puzzled me for decades why this is still true in most of the small and middle market companies we see that don’t have a competent and communicative CFO or Controller. Or an aware and inquisitive board of directors or advisory board. If the ever-changing relationship between net income and net cash flow isn’t apparent by reviewing the company’s monthly reports, then the CEO’s choices are to:

  • ask for an analysis of the causes,
  • guess at the causes, or
  • review a statement of cash flow, which sets out those causes in a clear and standard format.


Full disclosure: this report is admittedly not as simple to read as an income statement or a balance sheet. But that’s no reason to ignore the immense amount of valuable information it contains. At first some of the ins and outs of cash generation will give pause – how did the write-off of previously paid insurance or property taxes produce cash? But it doesn’t take long to get the relationships clear if you’re serious about it. And if you trend it over 6 or 12 months, Wow! Years ago we were engaged by a small aerospace firm run by brothers who didn’t even have a working cost accounting system in place when we met. But within a few months the brother who was not responsible for the front office was able to explain the cash flow statement to me instead of the other way around. And he didn’t even have the advantage of the excellent explanation outlined in Chapter 6 of my book.

If you’re running a company or any organization that is designed to produce a profit – or more likely, a positive cash flow – make this report an addition to your monthly financial package, and review it in at least the depth you devote to your other reports. If you do, you will soon appreciate its power to inform and guide management decisions. And you too will be puzzled that every CEO doesn’t get it.

We are Your CFO for Rent®

There’s Always a Good Reason to Spend Money

How many times has a member of your management team,  or a valued worker, come to you with a “great new idea” to help the company get better at something – a new machine that will shorten processing time, a new software service that will help you sell more products or services, or cut the cost of whatever? How many times has it delivered the promised results and been the best use of the money? And of course the idea is always presented with enthusiasm and reasons why it’s a great idea.

“Almost always” would be a phenomenal answer – and hard to believe. “Most of the time” would be a tribute to your team’s expertise and your leadership. “Almost never” would be a problem, and “I really don’t know” is a BIG problem, and the subject of this post.

Leaders can often see if a change delivers on its promise of doing something better. Processing time indeed shortened, sales indeed went up, etc. The second part is the tough one – was it the best use of the money? Very often ideas get implemented in the excitement of seeing improvements without taking stock of the total cost across the organization and comparing that with the net income improvement produced by the new shiny thing.

  • How much did it really contribute to the company’s bottom line?
  • How did its net profit improvement compare with a different idea that would have required the same amount of capital needed to carry out the idea you adopted?

The part of the decision making process that typically gets overlooked is the analysis that answers those questions. Of course if there is something that’s critically broken that must be fixed now, there’s no real opportunity for that hard look. You’ve got to fix it now. Understood. But let’s be honest: most of the time that’s not the case.

You see, there’s always a good reason to spend money. The question that’s harder to answer, given we all have limited resources, is the one that asks: Is this the BEST use of our money at this time, and down the road? Taking the time to do the analysis and answer that question, before giving the go-ahead, can be frustrating to the avid proponent of the great idea, but essential in doing what is best for the company.

Tools that are available to answer that question – besides reining in the boundless enthusiasm that you don’t want to discourage – include:

  • having your finance team calculate the Internal Rate of Return (see our post of October 22), based on the real Contribution Profit expected (see our post of September 3),
  • comparing it with what can’t be done elsewhere if the money is spent here and now,
  • determining if this supports the long term direction of the company (as outlined in your strategic plan, of course), and
  • assessing the likelihood that your management team can utilize the full effectiveness of the new idea, an assumption likely adopted without challenge by the presenter of the idea.

Your job as the leader of the team is to resist the urge to jump on the bandwagon until the idea has been fully vetted using the options list above. That’s how you build a great company.

Does Your Business Need a Loan?

For a small to mid-sized company, whether startup or emerging go-getter or well established company during a coronavirus era, it’s harder than ever these days to get a bank to lend you the money to build the momentum you need to succeed. Many banks are still afraid of the current economy and its implications for loan defaults. You will invariable get questions like:

  • How long have you been in business?
  • How much profit are you generating?
  • Do you have enough cash flow to easily make loan payments?
  • How reliable is your accounting?

Frequently, the answers to those questions are not the ones your bank wants to hear, but they are the very reason you need the loan in the first place. We had a client in just that position a few years ago. Our approach was to first take a look at the various borrowing options that are available to smaller companies. This was our list:

Type of Borrowing Duration of Loan Collateral Use Cost
Revolving credit line Credit line one-year renewable, but borrowing revolves indefinitely Accounts receivable, inventory, other assets owned, not pledged elsewhere Temporary cash needs; replacing the cash tied up in receivables and inventory until they can again become cash Low
Accounts receivable loan Credit line one-year renewable, but borrowing revolves indefinitely Accounts receivable Early access to cash tied up in receivables, similar to revolving credit line Medium
Factoring Invoice by invoice 30-90 days, revolving as new sales are made Accounts receivable Getting cash from receivables, passing on risk of collection to the lender High
Flooring One to three years renewable, but borrowings revolve indefinitely High-priced inventory, such as cars and boats Financing showroom inventory of items for sale, which are also the collateral


Term loans Various annual terms depending on type of loan and life of asset financed—one to 30 years Various, from collateral being purchased to all assets the company owns Long-term purchases of assets or real estate or to provide capital for long-term projects to companies without adequate internal cash generation Medium
Equipment loans and leasing Three to five years, or longer, depending on life of the asset The asset being acquired, or refinanced in case of sale-and-leaseback Acquisition of large pieces of equipment or large amounts of equipment Medium to High
Bonds Variable, with lengths to 30 years and more None, although some are mortgage-backed and others are insured as to default Major long-term projects for large companies, including expansion and acquisition programs Low
Convertible debt Variable, with lengths to 30 years and more None, although conversion privilege adds value, especially in a good market Major long-term projects for large companies, including expansion and acquisition programs Low

We determined that the best option was a medium length term loan from a bank, the optimum compromise between cost and flexibility. Here was our approach:

  1. We hired a strong bookkeeper (temp-to-hire at first, then permanent) that could take direction and help us clean up the books and do some restatement of the past couple years.
  2. We engaged a CPA firm to perform a review of the most recent year, to validate that the books were now acceptably accurate and processes were in place to keep it that way.
  3. We helped the company develop a financial projection for a couple years into the future, using realistic costs, market pricing, and a defensible growth strategy (a strategic plan came later – for now the story was delivered verbally, helping to build rapport as well as tell the story).
  4. We invited a new banker to listen to the story, which was well structured and presented with a plausible path to success.
  5. Oh, and we convinced the founder to offer some of his personal real estate as added collateral for a limited time until the company could demonstrate the validity of its forecasts.

No question the collateral helped. But what got the job done was finding a bank that would listen to the story with an open mind, and then telling the story in a powerful and credible way. There’s a lot of money wanting to be put to work, You just have to convince the source that they can be certain it will get paid back. Hah, piece of cake.

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