Every business moves through certain stages during the course of its existence. The time period of each phase varies depending on many factors that confront the company.
In his book, Predictable Success, Les McKeown identifies seven stages of growth and decline through which every organization progresses (McKeown, p.16). One of the early stages he identifies as “Fun.” This is the stage where the company is taking on customers at a rapid pace and sales are increasing. Everyone is having fun because the business is growing and the future seems bright. However, there are dangers in the fun stage. McKeown describes a situation in which one day, the owners find they are in debt at a very high level, and they cannot understand why, because sales have been very good. Of course, the reason for the high debt level is from a decrease in profits. One of the ways to help avoid this situation and keep the fun in the business, according to McKeown, is to “Invest in quality, timely accounting reports-and read them. Specifically, to maximize your fun, invest ahead of the curve in cost accounting-breaking down revenues and associated costs by project or customer, so that you know early on which jobs are profitable and which are not. Do this as early as possible-as soon as you’ve got your second customer, even though it will feel like overkill-and get used to reviewing your variable costs on every job and your fixed costs every month(McKeown, p.53,54).”
In the July/August issue of Inc., John Katzman, founder of the Princeton Review, had this to say concerning one of the things he messed up after he had started the company, “I did not pay enough attention to understanding my balance sheet. I did not make sure I had real-time financial information or good projections about where the company was going (Katzman, p.96).”
Starting and growing a business can be fun. Keep it that way by having excellent financial information, reviewing it consistently in detail, and using it as a tool to enable good timely decision making.
*McKeown, Les, (2010), Predictable Success
*Katzman, John, (2014), Inc. July/August 2014