Page 54 - 25148.pdf

42 • The 100 Greatest Ideas for Building the Business of Your Dreams

claims. The cement is not put against profits until it has been used in a contract and
therefore sold. So in the opinion of the accountants and the owner of the business,
these assets have little impact on this year's profits.

Now go and look at the yard where the assets are kept. It so happens that an
apprentice emptied the cement into the mixer, added water, was called away to do
something else and by an oversight left the cement in the mixer over the weekend. It
solidified, as cement tends to do, rendering the stock of cement unusable and the
mixer unfit for its purpose. What now should be the impact of these assets on this
year's profit and loss account? We know, and so does the builder, that the value on
the balance sheet should be written off now, knocking a significant sum of money
off the bottom line. But, we happen also to know, this would not please the bank
manager one little bit. He or she was promised profits at such and such a level and
that is what they want to see. So the builder wheels the mixer into a dark corner of
the yard and everyone is happy. Profit is an opinion.

Reality strikes only when the builder needs cement and a mixer; it will cost cash
to hire a mixer and buy the raw materials. So cash is reality.

Second greatest mantra: 'in a cost benefit analysis, the costs are
absoluteiy real, the benefits are a sort of dream.'

The art of running the business of your dreams includes making assessments of the
future. The only certainty about such assessments is that they will be wrong. But
you are much more likely to overestimate the income stream or profits, than overes-
timate the costs. Suppose you have to hire good people and pay them high salaries,
that is a fair business risk. But it is good practice to look at the return you will get on
them very gloomily and then half it. That is probably the only certain way to avoid
disappointment. Give people time in your plan to come up to speed in terms of the
contribution you have hired them for.