Goodbye 2020! Good riddance. 2021 can’t get any worse so here’s to the good times!
Not. So. Fast.
2021 could be the start of the roaring twenties, and the mood amongst our clients is impressively upbeat. I however prefer to temper optimism with a clear-eyed view of the difficulties facing us.
This view is perhaps most famously articulated by Admiral James Stockdale, who was a prisoner of war in Vietnam for over seven years. He famously said of his incarceration, “I never lost faith in the end of the story. I never doubted not only that I would get out, but also that I would prevail in the end and turn the experience into the defining event of my life, which, in retrospect, I would not trade.”
When asked about the personal characteristics of prisoners who did not make it out of the camps, he replied, “The optimists. Oh, they were the ones who said, ‘We’re going to be out by Christmas.’ And Christmas would come, and Christmas would go. Then they’d say, ‘We’re going to be out by Easter.’ And Easter would come, and Easter would go. And then Thanksgiving, and then it would be Christmas again. They died of a broken heart. This is a very important lesson. You must never confuse faith that you will prevail in the end—which you can never afford to lose—with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
This is the Stockdale Paradox and it’s a useful lesson for business leaders as we head into 2021.
So with that in mind, let’s face those brutal facts right now and explore how Profit First can help leverage our natural behaviour to help us navigate through:
The brutal facts
- The country is in recession. People will lose their jobs and their families will suffer the consequences.
- What worked for us this year, might not work for us next year. Markets and consumers are rapidly changing and your product and the way you deliver it are going to have to evolve.
- Taxes will probably stay low for the time being, but are going to increase in future. It’s just a question of when. The time to prepare for this is now.
- The banks will call in loans. For those of you who think your Bounce Back loan is unsecured, I have some bad news. If you took out a BBL with your existing bank and their terms and conditions gave them floating security on pre-existing loans, then that security will likely also apply to the BBL. Ouch.
- It will most likely take at least six months before we can expect restrictions to be significantly lighter than they are now.
These circumstances do however create opportunities for the fleet footed. Here are some practical steps to help you navigate the uncertainty.
How Profit First can help.
- Perform an Instant Assessment on your business. This Profit First tool will give you a clear understanding of where your cash is going, and where any overspend is. This is necessary to fully confront the current reality.
- Review costs. I know. You did this last year when we headed into lockdown. Do it again. Squeeze the towel and make sure this exercise is done at least every six months. Do it the PF way by identifying things you’ve got to have, nice to haves and things to cancel. Today.
- Set up a ‘vault’ bank account. As sure as night follows day, the good times are followed by bad times. It’s not a matter of if things will be tough, it’s a matter of when. So take actions now to prepare for the stormy weather. If you haven’t already, implement Profit First. Those who had it in place were able to ride out the uncertainty in 2020 with a clear road plan and some wool on their backs.
- If you already have Profit First, set up a ‘vault’ account. Start with 1%. This is the rainy day fund for those black swan events. E.g. when the government tells everyone to stay at home.
- Work with a Profit First Professional to set up and monitor a Profit First forecast. Eyeball what each account should look like at each month end for the next 12 – 18 months. This will bring to life the moving parts in the business. For example:
- Headroom in the owners pay account.
- Cash available for investment.
- How loans and HMRC Time To Pay arrangements will play out.
This will enable you to park these key metrics and focus all of your brain power on what adds value to your business – product development, margin analysis, staff training and system development. Much better than being dragged into survival mode and losing sleep over cash.
Being an optimist is a key element of being an entrepreneur but it shouldn’t be blind optimism. It has to be augmented with good systems and controls to tip the odds of success in your favour.
- You have an accounting system.
- You have a CRM system.
- You have a HR system.
Time to implement a cash management system. Welcome to Profit First.