A Finger in the Wind

Guess what?

I’m 70 – that’s seven-zero – or at least I will be five days after this newsletter is distributed.

It’s probably jinxing myself to write this, but I feel very good about being 70, even apart from a consideration of the alternative. I’m in excellent health, I feel great, I have lots of energy to spend on my full house of clients (which has gradually replaced my house full of kids), with plenty left over for family, for traveling, for working out, for volunteering, for keeping up with friends. In short, life is good, and I have no plans to change any of it…

Or at least I didn’t until I began to consider the what-ifs. Turning 70 increases the urgency to do that and to provide specifically, rather than just generally, for downside scenarios. After lots of input from many sources, my wife Anne and I realized that the options and opportunities are best presented in an updated family financial plan. Despite my years of developing spreadsheets, Boolean algorithms, and small business financial strategy, we discovered that there’s no substitute for objectivity and broad-gauged experience. Like the shoemaker going to Nike for his children’s footwear, we engaged a personal financial planner.

The five kids, the six grandchildren, and the seven clients are all keepers, but everything else is up for grabs as Annie and I consider what we want our lives to look like in three to five years.

More importantly for planning purposes, in light of the downs and ups in our investment portfolio in the past three years we need to play out some revised income scenarios with varying “what-if” assumptions. The fact that some of the revenue drivers (interest rates, the stock market, real estate prices) are out of our control won’t deter us from constructing alternative strategies to address the risk-reward balance.

In similar fashion, my longest-running (seventh year) client is in the process of extending its planning horizon through 2014. Having recently hired a new COO in response to the President’s vision to build a $25MM business from what is currently a $10MM footprint, we’re creating the blueprint for significant revenue growth. No longer can the company simply be an order-taker for its four major customers (which together comprise 80% of the business). No longer can the sales reps simply chum the trade shows in hopes of reeling in new big fish.

Sustained growth for this company requires the development of a long-range plan with detailed assumptions in four major areas: Revenue, Staffing, Sales/Marketing, and Capital Expense, with R & D becoming a fifth factor in a year or two. The rest of the financial plan is largely a function of decisions in these areas, and among them the dominant issue is revenue generation. So that’s where we have started, by asking the following questions:

  1. What’s the five-year sales history of all of our currently-active accounts? What does this tell us about their prospects for the next three years?
  2. What do we know about the market position of each of them that will help us to forecast their future requirements for the products that we provide to them?
  3. How much penetration do we have as a vendor to each of them?
  4. What new products are they developing that we can manufacture for them?
  5. To what extent are they likely to provide their additional manufacturing capability in house vs. outsourcing?
  6. How good is our connection to them in terms of our historical performance, personal relationships, unique expertise, and competitive position?
  7. With respect to new customers, where do we find the best prospects? Should we stay within our defined industry or branch out?
  8. Do we target established companies ahead of start-ups?
  9. Is there any mileage to be realized from “rehashing” (in an organized way) prospects that we have connected with at any time in the past three years, to requalify them?
  10. What’s the prospective revenue from each of the existing accounts vs. the potential among new customers?

Addressing all of these questions points the discussion toward related areas: marketing tactics, sales compensation and incentives, product mix, pricing, our own production capacity (with staffing and equipment/facilities considerations), targeted profit margins, etc. And the net of it all is…

How do we pay for this growth? Will internally-generated funds be adequate? Will we have the collateral to support bank financing? Will we need to go to the equity market? If so – when, where, and how?

…All of which brings us back to life at (st)age 70. When you’re growing or declining as an individual or as a business, running out of cash is more than a theoretical prospect. While you can’t plan for all contingencies, planning for none of them and assuming that tomorrow will be pretty much like today is seldom a winning long-term strategy. A single finger in the breeze is not a barometer. Who’s your weatherman?

Alligator Bites

“Bad planning on your part does not constitute an emergency on my part.” – Proverb

“He who fails to plan, plans to fail.” – Proverb

“Planning is bringing the future into the present so that you can do something about it now.” Alan Lakein

“A good plan violently executed now is better than a perfect plan next week.” – General George S. Patton

“Let our advance worrying become advance thinking and planning.” – Winston Churchill

“Organizing is what you do before you do something, so that when you do it, it is not all mixed up.” – A.A. Milne

“When planning for a year, plant corn. When planning for a decade, plant trees. When planning for life, train and educate people.” – Chinese Proverb

“It pays to plan ahead. It wasn’t raining when Noah built the ark.” – Unattributed

“Unless commitment is made, there are only promises and hope, but no plans.” – Peter Drucker

“Good fortune is what happens when opportunity meets with planning.” – Thomas Edison

Source: – ThinkExist.com

Draining the Swamp

For planning purposes:

Energy Source April 1, 2011 June, 2011
Crude oil (WTI, per bbl) $107.62 $105 – $115
Natural gas (per MMBtu at wellhead) $4.40 $4.50 – $5.10
Regular gasoline (per gallon) $3.60 $3.90 – $4.10
Diesel fuel (per gallon) $3.93 $4.00 – $4.10
Heating oil (per gallon) $3.87 $3.90 – $4.10
Electricity (per kWh) $.099 $.10 – $.105


Source: The Kiplinger Letter, April 1, 2011