“A budget’s only one part of a plan and it’s a very small part. I know it’s ironic to hear that from an accountant. But, your four pillars are your people, your processes, your customers and finally, your financials.
Your people, processes and customers are what drive your financials. So when we drive a strategic plan, we must use this process, which is called a balanced scorecard approach. Develop KPIs around those four pillars, to be measured in, say, three-year intervals. Ask yourself, what do my people need to look like? What measures do I need to have in place to ensure I have the right people and the right HR processes around them? What processes in our business do we need to improve? How do we have a completely process-driven business that doesn’t rely on business owner, one where every single person understands what we do here? And what kind of customers do I want? How do they pay me? How do they interact?”
“We should budget the way big companies budget. They start by working out what profit they want. And then, ask how you’ll achieve that. What does my revenue need to look like to achieve that? What do my costs need to look like? What do my people need to look like? Start reporting to the profit number, not the revenue number.
To do that, you need to know where you are. We use real-time record-keeping in our business. It’s the key to understanding the numbers.
I often ask people how much money they made last year. And they say they have to ask their accountant. That’s garbage. That’s archaic. Cloud-based software can fix that.”
“Succession can be voluntary or in-voluntary.
Voluntary is when you or business partners decide to exit the business together – involuntary is when that choice is taken away from you.
If my business partner Rob passed away and I don’t have a succession plan in place, I automatically go into business with his wife. No offence to her, she’s a lovely lady, but she doesn’t have any idea about running an accounting firm. She might ask me to buy her out. But that would cost me a lot of money.
That’s why I talk about voluntary or involuntary succession. The time to develop that agreement is now.
When we’re in love and we’ve got grand ideas of how successful and how amazing our business would be – that’s the time to develop a succession plan.
For involuntary succession, you need what’s called a buy-sell agreement.
A buy-sell talks about what happens if one party dies or becomes permanently incapacitated. In my business, we solve that through a life insurance policy. Our agreement says that if one of us passes away, the business is valued by two independent valuers. We take the middle ground, and that’s the price one party buys out the other for. The money for that comes from the insurance policy. We both have life insurance policies equal to about half the value of our business.
We also have key person insurance – so the business gets a sum of money that we can use to find another person to fill the void.
You need to have it in writing. When there’s writing, there’s no fighting.
The other form of succession is voluntary – where you and your partners plan to sell. It’s easy if you both sell together. But what if only one of you wants to get out? You need to cover that in your agreement.
Rob and I have a written agreement, and we revisit it every year. In January, we go away for three days and spend a bit of time working on our strategic plan. But we also take a chance to get to know each other a little better – to take a break from the stresses of running a business.”
This is an edited extract from SmartCompany’s webinar with Jason Cunningham. You can hear the full interview here.
Myriam Robin is a reporter for SmartCompany and its sister site LeadingCompany. She has degrees in economics, international studies and journalism. She likes writing about businesses taking risks and doing new things.
