How Much Do You Need?

In her unending effort to catalogue the best retail resources in New England, my wife Anne several years ago chanced upon an unobtrusive store in mid-coastal Maine, about five miles north of Moody’s Diner (itself well-known to value-seeking eaters).

Alongside Route 1, just beyond The Well-Tempered Kitchen, behind a relic of a cash register in a dimly-lit shop sits Bob Havenstein, an octogenarian who presides over the largest collection of jigsaw puzzles in New England, right there in Nobleboro. His business, appropriately enough, is called I’m Puzzled.

Annie’s summer Down East isn’t complete without a visit with Bob, and she invariably ends up supplementing our puzzle stock, which appears now to be sufficient to absorb a house full of guests for forty days and forty nights of steady rain. Fortunately, this summer the guests and the rain never overlapped, so the puzzles sit on the closet shelves, waiting.

Anyway, there I was in the narrow aisles of Bob’s store, surrounded by puzzles of all vintages, trying to calculate whether a 1,000-piece puzzle takes twice as long (or more?) to complete as a 500-piecer, when it dawned on me that I could never do 1,000 pieces in one sitting. Which is why I never buy these things — I hate to start something that I won’t have time to finish the same day.

“But,” Annie reminded me, “you do like puzzles. It’s just that yours come in the form of spreadsheets.”

There it was. Harsh reality. I had admitted to her not too long ago that, for me, completing a financial spreadsheet projection was like solving a multi-layered puzzle. While it’s not to be confused with completing the Big Dig or the Burj El-Arab, a well-considered, well-documented spreadsheet that integrates a projected income statement, balance sheet, and cash flow forecast for twelve months is the sine qua non (that means it’s the Holy Grail) of financial management.

In addition to the fact that you can complete it in one sitting (once you have arrayed all of the pieces) consider these additional benefits:

  1. Comprehensiveness — There, in a single document, is your total strategy for the year, summarized in dollars — marketing, sales, compensation, product development, supply chain. This is your game plan.
  1. Documentation — With every assumption annotated, you’ll never have to scratch your head in mid-year wondering what you could possibly have been thinking as you gazed into your crystal ball.
  1. Integration — That 20% revenue growth target is no more than a dream unless it results from an exercise that brings together well-supported assumptions about lead generation, individual sales targets, product development schedules, incentive compensation, customer persistency, and so on — all of these elements arrayed in separate schedules in the spreadsheet file.
  1. Resource allocation — What are the key drivers of growth and profitability, and what will be spent on new people, new equipment, new incentives, new products, new markets?
  1. Expense control — You’ll know you’ve achieved it when your managers, instead of asking “Do we have the cash to pay for it?” say “Is it in the budget?”
  1. Direction — No one has to ask “Where’s this company going?” Line up the projection for the next twelve months with the results for the past twelve months and compare line by line to get the answer. If there’s no year-to-year change, then the answer is probably “Nowhere.”
  1. Goal-setting — The big metrics in the financial statements are comprised of a bunch of little metrics produced by individual contributors. Employees who understand how their results flow into the group product are usually more productive, especially in the presence of a group incentive.
  1. The answer to “How Much?” — It’s right there on the top line of the balance sheet. If the cash numbers are all positive once you’ve incorporated your current financing package, your cash requirements are covered. If, on the other hand, those cash numbers are surrounded by brackets, the largest of them (in a negative sense) is your cash shortfall.

As this indicates, the budgeting process doesn’t start and end with the income statement.

You may be producing a solid “bottom line” of profitability, but if you grow faster than your profitability allows, you can easily drain all of your cash in funding inventory, receivables and equipment. The three-part spreadsheet, by integrating a balance sheet forecast and a statement of cash flows, solves the puzzle, answers the cash question, and provides the array of other benefits.

The jigsaw puzzle, on the other hand, provides just a single benefit to me. At the risk of sharing a secret with the rest of the family, I will say that if someone else wants to clear the dining room table, dump out the 1,000 pieces, and take ownership of the exercise, I will probably jump in. I can then be as socially involved as the next person, without any need for completion. After all, the answer to the jigsaw puzzle is right there on the front of the box.

Alligator Bites

“In Toronto last week one Fred Shipley did a jigsaw puzzle while his apartment burned. Forcibly ejected by firemen. Puzzler Shipley finished his puzzle under a blanket on the sidewalk.”

“In Chicago the Century of Progress (World’s Fair) was about to issue an official jigsaw puzzle, picturing a panorama of the fair grounds, for 25¢.

“In a Manhattan speakeasy patrons worked feverishly over pictures showing cinemactresses in circumstantial bedroom scenes.

“Eddie Cantor sat up nights writing a jigsaw song.

“And a Mr. Morris M. Einson of Long Island City, L. I., went vacationing in the West Indies, leaving behind him a business which had increased its payroll 250% since last summer, was making 3,000,000 jigsaw puzzles a week, and had become so prosperous that it could retain smart Lawyer Mabel Walker Willebrandt to fight the Government’s contention…

“…that a puzzle of over 50 pieces is no child’s game, should pay the 10% wholesale tax on adult amusements. Most puzzles are 150–500 pieces. Her argument: no matter who plays with them, or how many pieces they contain, jigsaw puzzles are childish, picayune, taxfree.”

— Time magazine, February 20, 1933