Does Your Business Need a Sequester?
BY Tom Searcy
The end of the first quarter is the perfect time to evaluate where your business stands. Here's why it might pay to take a page out of the government's playbook.
It's the end of the first quarter. How did you do? Are your revenues, profits and cash flow what you predicted? What about your spending? How about the sales pipeline?
The U.S government is on a forced diet of about $85 billion in annual spend as of March 1, 2013. Skip the politics of the issue for the moment and focus on the basics of what the sequester is—a triggering event that created a forced adjustment in spending.
Could your business benefit from a sequester? The end of your first quarter gives you an opportunity to re-calibrate your plan for the year.
Let's see where you stand on your business practices. Answer these few questions, Yes or No.
My company has a clear course-correction plan for what we do if we exceed or fall-short of our revenue plans for each quarter.
My company has a clear course-correction plan for what we do if we exceed or fall-short of our cost budget for each quarter.
My company has a clear course-correction plan for what we do if we exceed or fall-short of our profit plan for each quarter.
If you answered "No" to more than one of the above, it is my recommendation that you establish a plan. Too often I see companies that make decisions based upon the latest set of data without considering a long-term plan. This kneejerk reaction wears out your people and diminishes their confidence since it appears that you are reacting to the world rather than following a path. (By the way, the same is true for your bankers, suppliers, and potentially your customers.) It is better to have a model that clearly lays out which triggering levels of performance will cause you to change course rather than making every budget-evaluation period a surprise party that sets everybody scrambling.
What to do:
Set a threshold of variance--Over-correction in reacting to performance that doesn't meet expectations can be just as dangerous as no response. By determining what is a tolerable level of variance within which you will stay the course of your original plan keeps you from this over-correction.
Establish leading indicators that carry from one quarter to the next--Often, the corrections that are necessary can be seen in trend data that starts as a leading indicator in a month or quarter that should be monitored to see if it is an anomaly or a trend. If it is a trend, then response should be planned. If it is an aberration, then it can be noted, but change may not be necessary.
Create an if-then trigger of actions based upon trends and threshold variance--Categories can include hiring, marketing budgets, capital expenditures and so on. Consider setting triggers that determine when to increase, decrease, or delay behaviors. Most companies do this when they become uncomfortable with poor performance or excited due to better-than-expected performance. The challenge is to stick to the guidelines you have planned and not just react to the most recent data. The better companies create a plan and then monitor to the performance metrics and thresholds.
Products run hot and we scramble. Sales go cold and we scramble. I see many companies who have become world-class scramblers. Become a world-class planner and you will scramble a lot less often.