No metaphors or sales promises. Here is an example of how I have helped a client make a million dollars.
My client, let’s call them Smith & Co, have a successful business. By that I mean they have good business acumen, are good at what they do and have a good reputation in their market.
They received an opportunity to undertake a large piece of work for an existing customer. The opportunity was in the line of work they specialised in and was operationally straight forward. But, it was big. The revenue from this one piece of work would represent over 50% of their current annual turnover. And, if completed successfully, produce a $1 million dollar profit.
They would receive a minimal deposit for the work, both relative to its size and to current industry practice. This meant they would need to incur costs for the work, before being paid. This timing of cashflows and the sheer size of the piece of work, presented a large financial risk. So large that the first time I heard about it from Smith & Co they were going to pass on the opportunity as the risk appeared insurmountable.
Transparency
From an operational side, they were very clear on how they could deliver the piece of work. As such they understood the operational risk and felt those risks could be managed. They had worked with the customer before and felt the customer and\or credit related risk was low and manageable.
It was purely the financial risks that felt insurmountable. But they also had no clarity on what these were exactly.
Before agreeing that Smith & Co should pass on this opportunity, I offered to put together a financial forecast of the project. Being completely on their operational plan and the assumptions they already had. I just put it into numbers over time.
In talking them through this forecast they gained a clearer understanding of the financial risks of the project. Specifically, the amount they needed to finance the project. And an idea of the contingency needed if there was a delay.
The risks became transparent.
Preparation
Now they knew the risks, they were able to deliberately source mitigation for the risks. They did this through a combination of financing options. These options were currently available to the business and did not expose them personally. Plus, they were able to include the cost of establishing the financing options into the contract for the work. So, the cost to mitigate the risk was accepted by their customer as part of the cost of the work.
Monitoring
With the confidence the transparency and preparation had given them, they undertook the large piece of work.
They continued to use the tools for forecasting outcomes over the project. In doing so gave them the foresight to manage the project so well, they did not end up needing to draw on the facilities they had put in place. They now know how to manage their work both operationally and financially.
And yes, it made Smith & Co $1 million dollars. And that same customer was so impressed with their work, they are already talking about the next one.
If you can’t see where you are going, how do you expect to get there?
In having an understanding of their business and what was important to them, I was able to show them options of what might be possible. I was then there to help them prepare and execute. This gave Smith & Co greater understanding and increased confidence in their business. And it achieve one of Smith & Co’s goals.
It wasn’t the money that was the goal. It was financial security for their young family that was their goal.
This is what I believe being an Accountant is all about, helping others achieve their goals.
About the Author
Justin Hogg is the founder of Right Source. He is passionate about driving change in the expectation of what an Accountant is and does. And at the same time raising the bar on what we expect of and from Accountants.
If you would like to hear more or share some of your experiences, feel free to email on justin.hogg@rightsource.com.au or call 0414 896 696.
Together we rise.